After falling below, the crucial $20,000 threshold over the weekend, Bitcoin (BTC) is up more than 6 percent today. According to statistics from CoinMarketCap, it dropped as low as $17,709 before rising up to about $21,190 at the time of writing. However, investors who have just seen their portfolios destroyed will find little solace in that modest increase.
According to some observers, the price of the leading cryptocurrency may have finally bottomed out if Bitcoin can maintain its head above $20,000 level. It seems sense that people want to put a stop to this time of exorbitant costs, but it’s still too early to discuss a recovery. Bitcoin is already over 70% below its all-time high, and there are still some dark clouds looming over the cryptocurrency market.
Why is Bitcoin having trouble?
The economic environment now is considerably different from the one that drove the whole crypto sector to record highs last year, which is the fundamental reason Bitcoin is struggling. Economic tightening policies result in significantly less money floating around, which has a significant influence on high-risk assets like cryptocurrency.
The U.S. is experiencing a cost-of-living crisis as inflation reaches 40-year highs. Utilizing every instrument at its disposal, the Federal Reserve strives to lower inflation. It most recently implemented a hefty rate rise of 0.75 percent, which significantly influenced Bitcoin’s most recent downward price movement. Next month there could be a similar increase as well. These extreme actions have increased concerns about a recession, which has worsened Bitcoin’s problems.
A developing crisis in decentralised finance is a crucial additional element (DeFi). DeFi eliminates the intermediary in conventional banking and provides interest-paying accounts, bank-free loans, and other services. The issue, as we are now seeing, is that it also eliminates numerous financial protections and investor protection measures. Some platforms, for instance, are so linked that the failure of one might cause a chain reaction.
The LUNA ecosystem on Terra imploded in May, wiping away over $60 billion in a brief period of time. The aftereffects are still present. Recent withdrawals on their platforms have been suspended by DeFi lenders Celsius and Babel Finance due to extraordinary market circumstances. Additionally, there are claims that the cryptocurrency hedge firm Three Arrows Capital is bankrupt.
Is this the lowest point?
The slight price hikes we’ve witnessed in recent days are undoubtedly a relief after weeks of negative price movement. However, it is much too early to discuss a bottom or any sort of rebound. First off, the economic circumstances that led to the decline still exist. While the Fed is still raising interest rates and the threat of a recession looms over investors, prices cannot rebound. Additionally, the DeFi issue is still rumbling, and we are unsure of the form that expanded crypto regulation will take.
If you want to purchase the dip and are wondering whether Bitcoin is bottoming out, there are a few factors to think about. Take your time, first. You can afford to investigate the top cryptocurrency’s long-term potential and think about how it fits in your portfolio because a significant rise is quite unlikely to occur anytime soon. Ensure that you are aware of the hazards and only invest money that you can afford to lose.
Second, be certain that your emergency fund and other financial objectives are in order. While it could seem advantageous to purchase Bitcoin at a discount, it’s more crucial to first take care of the things that will ensure your financial stability and enable you to weather any impending economic upheaval. It would be frustrating if the money you needed to get by if you lost your job or had a medical emergency next month was invested in a volatile asset like cryptocurrency.
Finally, keep in mind that prices might drop much more. Dollar-cost averaging is one tactic that helps lower risk in these erratic markets. Instead of buying cryptocurrency all at once, this entails buying a certain amount at regular intervals. If you had $1,000 to invest, for instance, you may buy $100 worth of Bitcoin at a set price every week or month. In this manner, you avoid waiting for the price to drop and never making any investments. Additionally, you won’t have invested all of your money at the incorrect moment if the market declines further.