Bitcoin’s price fell below $30,000 Friday, continuing a descent that began at the end of last week and carried on throughout the week despite a few short-lived rebounds.
The last time Bitcoin briefly spiked above $40,000 was on May 4 after the Federal Reserve announced it would fight inflation without larger rate hikes, but those gains were short-lived. Bitcoin had been trading in a tight range for several weeks now, primarily hovering between $36,000 and $42,000, but broke past the $36,000 support level last week.
“Interest rates increased, crypto markets dumped,” Crypto expert Wendy O said in a TikTok analyzing the market. “Personally, I feel we may bottom out at $29,000 again and get a pump in July. This is why you should have a bullish and bearish plan because the markets can switch super fast.”
Is the crypto crash finally over?
Many crypto investors have been hoping for an end to the carnage for several months. We’ve had a few moments like this one where it looked like Bitcoin might have turned a corner, but each time those hopes have been dashed by further bad news.
There is a chance the lead crypto has bottomed out, but it’s too way early to call it either way. Before we can seriously talk about an end, Bitcoin needs to not only hold its position above $30,000 but also build back consistently. The Crypto Fear and Greed Index is still registering extreme fear, reflecting the high levels of nervousness in the market. The index uses several factors, including social media trends, trading volume, and volatility, to evaluate market sentiment.
Plus, there are several ongoing issues that could still push Bitcoin’s price down again. Here are some factors to keep an eye on:
- Inflation figures: One reason crypto prices dropped this week was that the monthly inflation rates were not as low as economists had hoped. If inflation doesn’t slow, the worry is that the Federal Reserve will take even more drastic measures to control it.
- Wider economic and geopolitical factors: The impact of the Federal Reserve’s economic tightening has weighed heavily on crypto prices. There are growing fears about a potential recession, which would not be good for crypto.
- Increased regulation: The specter of increased regulation has hovered over the crypto industry for some time. Terra’s collapse could cause authorities to act more quickly, particularly in regard to stablecoins.
- Tether’s (USDT) wobble: Tether is the biggest stablecoin in the crypto world and yesterday it also lost its peg. The market may have been able to weather the fall of TerraUSD (UST), but it would be more difficult to survive any similar issues with Tether.
Investing in difficult times
It’s not an easy time to be a cryptocurrency holder, especially if you bought crypto for the first time last year. Some altcoins are now worth 50% or 60% of their all-time highs, and there’s a lot of uncertainty about when — and if — prices will recover.
What Does This Price Drop Mean for Crypto Investors?
For those who invest in crypto for the long-term using a buy-and-hold strategy, price swings are to be expected. 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 own 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 major value. “I know that these things are super volatile, like some days they can go down 80%.”
Experts recommend keeping your cryptocurrency investments to under 5% of your portfolio. If you’ve done that, then don’t stress about the swings, because they’re going to 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 type of extreme drop bothers you, you may have too much riding on your crypto investments. You should only invest what you’re OK losing. But even if the drop 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 with 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).
“Don’t check on it. That’s the best thing you can do. If you let your emotions get too much into it then you might sell at the wrong time, 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, but some experts feel cryptocurrency is too different from traditional investments to draw any 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 going forward. 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 who are selling their holdings in reaction to the latest drop may be contributing 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.
Some of the drops have been caused by a combination of factors, Noble theorizes, from excitement about low-quality coins, to negative remarks from Elon Musk, to China’s recent crackdown on crypto services. This mix of factors has potential to 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 a lot 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.”
It’s much too early to know whether the crypto crash is over. It is only one day since Bitcoin hit its lowest point since December 2020. We are still in a period of extreme uncertainty and there are a number of elements that could prolong this crypto dip. If you’re a buy-and-hold investor, it may help to view the current drops through a long-term lens. Up until now, Bitcoin has always recovered from even extreme price dips eventually, and many predict it will do so again.