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Bitcoin Crash: Should You Worry?
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Bitcoin is no stranger to crashes. It’s survived more hits than Mike Tyson in his prime. After every tumble often came a bullish uppercut followed by a torrent of relief generated by formerly spooked investors passionately exhaling.
What about this time? Just last week, Bitcoin had dropped below $18,000 for the first time since November 2020. While that’s still higher than any other cryptocurrency, a 50% crash in just a few weeks isn’t exactly indicative of a promising situation.
Some particular events were said to set off the momentum for the crypto market downturn, i.e. the Terra/Luna crash. When a stablecoin, something that is uncrashable in theory, crashes, people become antsy. More than antsy, perhaps, that Luna was driven down to near zero despite billions of dollars worth of effort to save it.
Following that, Celsius, a crypto lending company, locked its users out of their accounts to halt massive withdrawals - the funds it couldn’t afford to provide. While Bitcoin is crashing due to many economic factors, there is a certain degree of correlation between that and major crypto establishments who stand as idealistic benchmarks of the industry.
Why is Bitcoin Crashing?
Contrary to what most believe, there were no trigger effects to the crash of Bitcoin. Experts believe it was a culmination of many other things.
The Celcius incident had certainly played a major part. It has struck fear in the heart of investors. In a volatile environment, faith in the company holding your assets is sometimes more important than the assets themselves.
When users can no longer rely on their source of investment, assets become a liability. This led to panic sell-offs and liquidation of future contracts, Bitcoin and various other cryptocurrencies included.
Sentiment and social media have significant influence on the prices of stocks and crypto - more than some of us are willing to acknowledge. A casual exchange about a certain company’s latest investments could easily escalate to a buying or selling decision.
Investors also keep a keen eye on financial leaders and their opinions. A product endorsement or a simple tweet may possess the moving power of a nineteen wheeler against the market. We could see this at work when Elon Musk tweeted that Tesla would no longer accept Bitcoin as payment. The coin’s price fell almost immediately after that.
The current state of the global economy certainly doesn’t make things better for crypto. A major political conflict in Eastern Europe has caused severe economic disturbances, such as rising gas prices and food shortages. On top of a looming recession, the US Federal Reserve decided to raise interest rates by 0.5%, the highest since 2000. This makes it more expensive for businesses to borrow money and, in turn, affects consumers.
The economy’s downturn drags Bitcoin and other cryptocurrencies right alongside it. Holders are cashing in to fend off the rising prices of everyday products. Other investors believe this may be another correction but simply do not have a sustainable portfolio to wait it out.
Should You Worry About the Bitcoin Crash?
At the time of this writing, Bitcoin has floated up to just above $21,000. While it’s not a terrible sign, it’s not a call for celebration. Considering the current state of the market, things can turn south at any given moment.
On the bright side, it fits Bitcoin’s usual pattern of slow trekking back to the top and then higher. However, no one can guarantee that it would happen again, so the best thing to do is not make hasty decisions. Panic selling only worsens the market so that certainly won’t help anyone. Some investors suggest buying the dip but the problem is it only works if an asset has an extremely high chance of seeing an upturn.
Some of us will say deja vu when we hear Bitcoin is crashing. For many others, it’s a recurring nightmare. Whatever boat you may be sitting in, we’re all sailing on the same currents. Due diligence is key - try giving your own speculations more credit than some of your usual “reliable” sources.
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