Why Bitcoin Probably Hasn’t Bottomed Yet

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There are too many unknowns to think the worst is over for crypto.


Key points

  • After a very timid rally last week, crypto prices are falling again.
  • Bitcoin faces significant headwinds in terms of broader economic conditions and low market confidence.
  • Trying to time the bottom is nearly impossible and can lead to emotional investment decisions.

Just a week ago, crypto prices were green and Bitcoin (BTC) surged above $24,000 for the first time in over a month. The total crypto market capitalization had finally climbed back above the $1 trillion mark and some investors dared to hope that the worst was over. Unfortunately, these hopes were unfounded. Various news, including Tesla’s revelation that it had sold 75% of its Bitcoin, stopped this brief rally in its tracks.

It would be amazing to think that crypto prices have fallen as low as they are going to be and that we could put the difficulties of the past eight months behind us. But that’s unlikely. There are too many hurdles to overcome and prices could drop further.

Why Bitcoin Probably Hasn’t Hit Bottom

No one has a crystal ball and it’s impossible to know for sure what Bitcoin might do next. However, we can look at factors that may influence prices and make educated guesses. There are two main reasons why the current fall in prices is likely to continue: macroeconomic conditions and market sentiment.

1. Macroeconomic conditions

Many economists are warning that the United States could soon face a recession. In addition, consumers are struggling with the spiraling cost of living, the Russian-Ukrainian crisis shows no signs of easing and there is an energy crisis in Europe. None of these are conducive to a crypto rally.

Part of the reason crypto and stock prices are down this week is uncertainty over two announcements expected in the coming days. First, the Federal Reserve will decide how much to raise rates. Higher rates are not good for crypto prices as they can cause investors to shy away from riskier assets.

The other number to watch is the GDP. One way to define a recession is two quarters of negative growth. If the Bureau of Economic Analysis indicates that the economy shrunk again in the second quarter of this year, we can expect a lot of headlines about the recession. Not everyone agrees with these numbers (or this definition of a recession). But even the perception that we are in a recession will likely impact crypto.

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2. Crypto market confidence

A lot has happened in crypto over the past few months and it’s going to take time to rebuild people’s trust. We have seen the collapse of a major coin and the implosion of several crypto lending platforms, in addition to dramatic price drops. Unfortunately, many people who first bought crypto last year are now underwater in their investments. This means that the value of their portfolios is less than what they initially invested.

Additionally, a new cloud hangs over cryptocurrencies. The SEC said that at least nine of the cryptos traded on Coinbase are actually securities. The worst-case scenario is that it takes action against these individual projects and against the crypto exchanges that traded them. The SEC is already pursuing a case against Ripple (XRP), and we may see more to come.

Finally, investors expect regulatory clarity. It’s hard to imagine how prices can go up when we don’t know what form increased regulation will take. On the positive side, it is extremely unlikely that the United States will follow China and ban crypto altogether. But he can, for example, go ahead with his own digital dollar. It may also introduce much stricter registration requirements and trading rules. All of these would have significant implications for the cryptocurrency industry.

What this means for investors

If we could always time the market, we would all be able to buy at the absolute low and sell at the high. But that’s not how investing works, and trying to find the absolute bottom can lead us to make emotional decisions.

It’s important to think long-term and examine how you think Bitcoin and crypto might perform in the next five, 10, or even 20 years. There are reasons to be optimistic – some financial gurus believe that Bitcoin could be worth $500,000 or even $1 million one day. However, there are also reasons for caution — crypto could change the way we use money, but it could also collapse completely.

If you are bullish about Bitcoin, you can think of this as a broader accumulation period, rather than trying to find the bottom. If you do, make sure you only invest money you can afford to lose, and don’t prioritize any crypto purchases over other financial goals like your emergency fund and savings. retirement. Bitcoin could fall further, especially if the global economic situation deteriorates. The trick is to position yourself to benefit from any gains, but make sure you don’t face financial ruin if crypto prices fall to zero.

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