Experts still Expect Bitcoin’s Price to Rise Again. Ethereum has followed a similar pattern.
Bitcoin’s price fell under $21,000 on Tuesday ahead of a pivotal week for corporate earnings, the Federal Reserve, and the second-quarter GDP report.
The GDP report will reveal whether the U.S. experienced negative economic growth in the second quarter, and if it did, then the U.S. will be in a technical recession. Many experts anticipate the Fed to deliver another 75 basis-point hikes on Wednesday to continue its aggressive inflation-fighting stance. Investors are also anxiously awaiting corporate earnings from major tech firms this week, including Google, Apple, and Meta.
“Cryptocurrencies are broadly weaker as investors await an FOMC decision that will likely conclude with a 75 basis-point rate increase and reaffirm a commitment to fighting inflation,” says Edward Moya, a senior market analyst at brokerage firm Oanda.
The leading crypto has been trading in a relatively tight range between $20,000 and $25,000 over the last few weeks, following several red-hot inflation reports and Federal Reserve’s decision to raise interest rates. Experts also point to the continuous war in Ukraine and inflation hitting a fresh 40-year high for why we’re seeing slumping prices in the stock and crypto markets. Experts say that the crypto market has been increasingly tracking the stock market lately, which makes it even more intertwined with macroeconomic factors. Ethereum has followed a similar pattern.
Bitcoin hasn’t been above $50,000 since Dec. 25, 2021. Despite the ups and downs, Bitcoin’s price has seen a nearly 70% drop in value since its all-time high above $68,000 on Nov. 10, set back by surging inflation, lagging recovery in the job market, and the Fed’s ongoing signals that it would begin winding down pandemic measures to support the economy.
This week, Bitcoin’s price has been between $20,000 and $25,000. Here’s how Bitcoin’s current price compares to its daily high point over the past few months:
ONE WEEK AGO (JULY 23), $22,696.90
ONE MONTH AGO (JUNE 30), $20,108.53
3 MONTHS AGO (MAY 1) $37,820.61
Prices updated: July 30, 2022
Though it has had a slow start to the year, Bitcoin still entered 2022 on a relatively high note, with a strong November and early December that gave way to the recent downward trend. After starting in 2021 in the $30,000 range, Bitcoin increased throughout the year and hit its current all-time high when it went over $68,000 on Nov. 10.
Despite falling significantly from its latest all-time high price, many experts still expect Bitcoin’s price to rise above $100,000 at some point — describing it as a matter of when not if. Shortly after Bitcoin’s latest all-time high in November, Ethereum marked its new all-time high when its price went over $4,850. Ethereum has seen similar volatility following the latest high.
Bitcoin hit its first high in 2021 when it exceeded $60,000 in April. The price movement highlights the cryptocurrency’s volatility at a time when more and more people are interested in getting in on the action. In the weeks between a July low point that took it below $30,000 and its most recent high end in November, Bitcoin swung wildly up and down. The future of cryptocurrency is sure to include plenty more volatility, and experts say this is all for the course.
For this reason, we’ve talked to investing experts and financial advisors who advise against sinking much of your portfolio into the asset class. They work with clients to ensure volatile crypto investments aren’t getting in the way of other financial priorities, like saving an emergency fund and paying off high-interest debt.
“You have a high chance of losing it all, but a small chance of winning it big,” says Nate Nieri, a CFP with Modern Money Management in San Diego, California. “Don’t gamble an amount that would burden your family or prevent you from achieving your goals” if you lost it all, he says.
How does this latest crash compare to previous ones, or even to regular stock market drops — and what does it mean for investors?
What Does This Price Drop Mean for Crypto Investors?
Price swings are expected for those who invest in crypto for the long term using a buy-and-hold strategy. Big dips are nothing to be overly worried about, according to Humphrey Yang, the personal finance expert behind Humphrey Talks, who says he avoids checking his investments during volatile market dips.
“I’ve been through the 2017 cycle, too,” Yang says, referencing the “crypto crash” of 2017 that saw many major cryptocurrencies, including Bitcoin, lose significant value. “I know these things are super volatile, like some days they can go down 80%.”
Experts recommend keeping your cryptocurrency investments under 5% of your portfolio. If you’ve done that, don’t stress about the swings because they will keep happening, according to Bill Noble, chief technical analyst at Token Metrics, a cryptocurrency analytics platform.
“Volatility is as old as the hills, and it’s not going anywhere,” Noble says. “It’s something you have to deal with.”
As long as your crypto investments don’t stand in the way of your other financial goals and you’ve only put in what you’re ultimately OK with losing, Yang recommends using the same strategy that works for all long-term investments: set it and forget it.
If this extreme drop bothers you, you may have too much riding on your crypto investments. But even if the fall is making you rethink your crypto allocations, the same advice still stands — don’t act rashly or upend your strategy too quickly. Reconsider what you might be more comfortable going forward, such as allocating less to crypto in the future or diversifying through crypto-related stocks and blockchain funds rather than directly buying crypto (though you should still expect volatility when cryptocurrency markets fluctuate). You should only invest what you’re OK losing.
“Don’t check on it. That’s the best thing you can do. If you let your emotions get too much into it, you might sell at the wrong time and make the wrong decision,” says Yang.
What If You’re Interested in Crypto, But Haven’t Yet Invested?
Yang’s set-it-and-forget-it approach to crypto reflects his philosophy for investing in the traditional stock market. Still, some experts feel cryptocurrency is too different from traditional investments to draw historical comparisons. That’s why A’Shira Nelson of Savvy Girl Money is staying well away.
Nelson primarily invests in low-cost index funds because “I can see history on that,” she says. The newness of cryptocurrency and lack of trackable data make her wary of these crazy swings.
Potential investors looking to buy the dip should understand that fluctuations are par for the course and be prepared for this kind of volatility. Even if you invest now, with prices relatively low, be prepared for them to fall even more. Again, only put in what you’re comfortable with losing — after you’ve covered other financial priorities, like emergency savings and more traditional retirement funds.
What’s Behind the Latest Bitcoin Drop?
Many investors see Bitcoin’s price swings as part of the game, but “volatility is tough for individual investors to deal with,” Noble says. Like Yang, he warns against selling too fast.
Recent price fluctuation has followed surging inflation, ongoing uncertainty over the country’s lingering fight with COVID-19, and new regulatory actions by the U.S. government, including Biden’s recent executive order. In an industry as new and unproven as cryptocurrency, it doesn’t take much to drive big swings in price. More generally, new short-term investors selling their holdings in reaction to the latest drop may contribute to the drop in Bitcoin’s value, according to a report from Glassnode Insights, a blockchain analysis firm.
While fluctuations are expected, Noble says he’s been surprised by some of the recent big drops. “I thought the market was maturing, and these things would be less frequent and severe. Boy was I wrong,” he says.
Noble theorizes that some drops have been caused by a combination of factors, from excitement about low-quality coins to negative remarks from Elon Musk to China’s recent crackdown on crypto services. This mix of elements can potentially make sell-offs “all the more violent,” says Noble.
He likens the drop to the stock market crash of 1987, from which the markets took months to recover. But because crypto moves faster today than equities did in the 1980s, Noble says we may see a quicker recovery.
“Don’t panic and puke,” Noble says. “If you keep your positions small, you can try to tolerate the volatility.”
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