Cryptocurrencies have a dedicated group of admirers who seek out gems. Often, digital currencies have been able to increase their value by several hundred percent in a matter of days. However, such “easy” income also has a downside – it is extremely risky. The scammers repeatedly deceived profit-hungry investors and then got away with the money. However, this is not the only face of risk in the cryptocurrency market. The Bitcoin Crash shows why investing in cryptocurrencies is a bad idea.
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The Bitcoin crash has become a fact. At the time of writing this article, the price of one Bitcoin is $26,659. This is a 12.8% drop in the rate from the previous day. This, however, does not show the extent of the disaster experienced by cryptocurrency holders in recent months. Over the past 30 days, the BTC rate has fallen from $41,000 to $26,000 – a drop of more than 35%. Since the peak reached at the end of 2021, the value of electronic money has already decreased by more than 60%! So it’s hard not to use the term bitcoin crash here. What is happening that the rates of not only BTC but also other cryptocurrencies are sold so much in the market?
It is certainly worth noting what is happening in the macroeconomic environment. Russia’s attack on Ukraine and the sanctions have further reinforced the rise in inflation. Problems can be seen in many sectors, especially commodities and energy, where the prices of coal, oil, gas and electricity have soared in a short time. It should be borne in mind that cryptocurrencies, contrary to appearances, are not unreal compared to economic reality. If the broader market (and just look at the US stock market) begins to decline, it’s hard for cryptocurrencies not to experience a deep correction.
Central banks, whose job it is to raise interest rates to curb rising prices, are trying to tackle the problem of inflation. Unfortunately, these institutions are between the proverbial hammer and the anvil – financial markets expect inflation to fall, but refuse to raise interest rates. As a result, investors are fleeing assets such as tech company stocks (as seen by the NASDAQ index) and cryptocurrencies.
If the inflation situation does not stabilize in the coming months, stock and cryptocurrency investors could face a very difficult year. Fire oil is also added by the fact that from a technical point of view, Bitcoin broke support at $30,000. Analysts say the next level where the rate can persist is $25,000.
To confirm the thesis of the correlation of cryptocurrencies with financial markets, it is worth citing the example of March 2020. There was a sudden stock market crash. The value of Bitcoin then fell by 57%. However, with the rebound in major indices and the emergence of the so-called coronavirus boom, the value of digital currencies has also increased, causing BTC to peak in 2021.
Why investing in cryptocurrency is a bad idea
Does the Bitcoin Crash Mean an Opportunity to Buy It? In the context of such a drastic drop in the price of crypto-currencies, will the principle of buying on “lows” work? Not necessarily. Newbie investors don’t realize that the market can be unpredictable. This is especially true for cryptocurrencies, which can change in value quite quickly. The principle of buying the “lows” is based on the assumption that price declines are temporary corrections followed by price increases. Unfortunately, in this case, given the situation in the financial markets, this may not be the case. Many analysts say a bear market has begun that won’t end anytime soon. Thereby capture technique “Drops of knives” can be very deadly.
Cryptocurrency markets are volatile – if we’re at the start of a downtrend, it could end badly for many wallets.
Bitcoin’s fluctuations are also negatively affected by reports of regulatory issues in the cryptocurrency market. We have heard of reports from China banning cryptocurrencies. In turn, the US government wants to regulate this market, but it is unclear what it will look like. To this must be added fraud linked to counterfeit electronic currencies, a wave of hacks and security breaches. This undermines investor confidence in cryptocurrencies.
Moreover, many analysts believe that cryptocurrencies are the worst possible investment. Why? Because it has no value. The words of the world’s most popular stock market investor – Warren Buffet – should be quoted here. At a meeting in Bershire he said:
“Now if you told me you own all the bitcoins in the world and offered them to me for $25, I wouldn’t take it, what would I do with it?” I should sell it to you somehow. It’s useless. Houses will produce rent and farms will produce food. »
Says Warren Buffet.
Buffet suggests that Bitcoin “produces nothing” and is therefore worthless. Hard to disagree with him. For comparison, every listed company has some value, if only because it runs a business, owns assets, earns income, etc. If something has no value, how to value it? This is another cryptocurrency problem – some analysts put their value at $0. It is worth bearing these arguments in mind before investing in this uncertain market.
Source: forbes, time, finbold, yahoo.finance