People & Money

Bitcoin: Buy The Dip Or Hold Your Cash?

Bitcoin (BTC) plummeted to $34,000 at the time of writing, a 50% drop from its all-time high of $69,000 set on Nov. 10, 2021. Ethereum also dipped below $2,500 for the first time since April 2021. The terrifying sell-off pressure in the cryptocurrency market has been frightening since the beginning of the year, pushing the whole crypto market value down to $1.62 trillion as of yesterday’s market closing, down from $2.37 trillion at the start of the year.

Don’t buy the dip just yet- this may not be the final dip. The long bull run of cryptocurrency has hit the skids”.

However, there is some comforting news: bitcoin isn’t the only asset that has fallen in value; the stock market has also been volatile. After most equities traded bearishly, the S&P 500, Nasdaq 100, and Dow Jones staged a slight correction, after fallen 1.89%, 2.72% and 1.3% week-on-week.

Will the Bitcoin Rise Soon Again?

The internet is filled with news from speculators and crypto boosters advocating people to buy the dip. However, several retail traders who purchased Bitcoin near its all-time high are voicing their concerns over the massive decline of the asset this year.

Any decision is to buy the dip or hold your cash should be based on an analysis of the factors that have buoyed cryptocurrencies and those that have driven the recent sell-off . These are the key factors that I believe you should consider:

Also Read: Cryptocurrency Is a Giant Ponzi Scheme

  • Following the economic impact of the Covid-19 pandemic, governments and central banks responded with massive spending packages and several interest rates cuts to boost consumption. Consumer spending soared as countries throughout the world opened up their economies, pushing global inflation to new highs. As a result, the US Federal Reserve’s decision to raise interest rates earlier than expected prompted investors to shift their cash from risky assets like bitcoin to safer investments like fixed-income securities with the potential for higher returns. and lesser risks.

 

  • China, one of the world’s largest cryptocurrency markets, barred all cryptocurrency transactions, possibly the most significant single anti-crypto move ever, triggering a 10% fall in the price of Bitcoin.  The People’s Bank of China instructed banks and payment companies in the nation to stop facilitating cryptocurrency transactions.  Although cryptocurrency trading has been prohibited in China since 2019, the latest step indicates that the country is prepared to outlaw cryptocurrency trade in all forms.

 

  • The US Securities and Exchange Commission is set to increase regulation over cryptocurrency exchanges/trading platforms like Coinbase, which is listed on the NASDAQ exchange, by bringing them under the SEC’s investor protection framework, in a move similar to how the SEC oversees stock exchanges like the New York Stock Exchange (NYSE) and the NASDAQ stock exchange. In addition, the US Congress is studying all cryptocurrency-related problems, including crypto lending with an eye to introduce stringent regulations which will certainly dampen trade in the asset class.

 

  • According to a January report by research” house in the USA “Cornerstone Research“, the Securities and Exchange Commission (SEC) has imposed a total of nearly $2.35 billion in penalties against participants in the digital asset markets since 2013. This decision, I believe, has reduced institutional investors participation rate in the cryptocurrency market and may be regarded as one of the factors driving bitcoin bearish pressures. It is a sign of more trouble to come.

 

  • The Russian Central Bank is the most recent regulator to crack down on cryptocurrency. The Central Bank proposed a ban on cryptocurrency investment and mining five days ago, as governments around the world clamp down on decentralised currencies, claiming concerns about monetary stability.  According to the Bank, Russian citizens’ cryptocurrency transactions total $5 billion per year, making Russia the world’s third-largest crypto mining market behind the United States and Kazakhstan.

 

  • Kazakhstan, the world’s second-largest Bitcoin mining country, lost Internet connection due to political unrest over rising energy prices. As a result of this news, the price of Bitcoin fell over 8% on Friday, to lows not seen since September 2021, and fell below $40,000, as investors sold off their crypto holdings, owing in part to the Kazakhstan crisis, but also to the minutes released by the US central bank, which indicated that it would tighten monetary policy. However, several large crypto miners are looking to leave Kazakhstan, a global crypto hub, which could have an impact on the amount of bitcoin mined in the cryptocurrency market and could lower the supply of the crypto asset.

With the recent regulatory treats on cryptocurrencies, as well as the expected interest rate hikes by global central banks, a near-term recovery of cryptocurrency assets such as Bitcoin, Ethereum, and others to their all-time high of $69,000 seen in November, appears unlikely, at least until the second half of the year. Indeed. Bitcoin has reached a tipping point. It is possible that a further sell-off is in sight. Don’t buy the dip just yet- this may not be the final dip. The long bull run of cryptocurrency has hit the skids.

Whether you intend to buy the dip or hold the cash, we expect that players in the cryptocurrency space will adopt a more cautious approach to investing and trading this year.

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