A drop of more than 25% in less than 5 days is not normal for Bitcoin. I mean, these are exceptional times. Twitter “experts” and “influencers” speak of yet another drop in Bitcoin stories. I mean, no problem. It is normal”. In fact, the collapse is portrayed as a great buying opportunity, worth celebrating. Obviously this is a show. No one likes to see their wealth drop by more than 70% in less than a year. That untainted faith and indifferent calm is lip service, because many of these so-called “heroes of patience” bought Bitcoin with debt. And, right now, they’re in the red. Which is not very good news for your creditors. An epidemic of bankruptcies is possible. Which would be a catastrophe for the industry.
Markets fluctuate. Of course it’s normal. What happens is that some markets fluctuate more than others. Investors buy today to sell tomorrow at a better price. Undoubtedly, the main motivation is profit. Despite the fact that many of these “experts” affirm that the price does not matter and that the ultimate goal is, in fact, to save the world, panic has taken control of the markets. This widespread pessimism hits the industry hard in many ways. In the first place, the audience of the specialized press drops dramatically. Second, mining is less profitable. Third, exchanges make less money. And fourthly, everything is a little more difficult for new projects. In other words, it seems to me that this fall should be taken seriously.
Bitcoin is a risky asset. Spot. As simple as that. At this stage in its history, it is a speculative asset with a volatile, fragmented and fairly illiquid market. Why is the price falling? The price falls due to macroeconomic conditions. Investors are becoming more conservative, seeking stability in safer assets and moving away from more volatile speculative assets. The truth hurts. The possibility of a recession is real. The possibility of several years of high inflation is also real. Which means that the world’s major central banks will be forced to withdraw liquidity from the system in more aggressive ways than anticipated. That, in turn, means investors will have less money to invest. Bitcoin, in its brief history, has never been under such conditions.
The war of narratives is won by leaving Twitter and directly studying the price. The price falls when there are more sellers than buyers. And sellers are essentially pessimistic. They have a very particular interpretation of the facts. Bitcoin is going down for the same reasons the S&P 500, Nasdaq, and FAANG are going down. And for the same reasons the dollar and T-bonds are rising: The next meeting of the US Federal Reserve. Liquidity drives markets up. The withdrawal of liquidity lowers the markets. Bitcoin suffers more, because more volatile assets suffer more in such conditions.
We can’t go back to the old charts to know what’s going on. This is not a fall like the previous ones. The change in monetary policy by the United States Federal Reserve marks a before and after. The war in Europe marks a before and after. And the “end of globalization” marks a before and after. It is a new paradigm. The phrase “Bitcoin already been through this” does not apply. Because Bitcoin has not been through that.
The current support is the high of 2017. That is, the person who bought in December 2007 waited almost 5 years to get back to being pretty close to his starting point. Binance, the main cryptocurrency exchange by volume, suspended withdrawals for a few hours due to an alleged temporary “congestion”. Not everyone believes the official version. Is Binance not as solvent as we think? The lender Celsius was also bitten by the same mosquito. Because it also suspended its withdrawals due to “extreme market conditions.” Coinbase, the main exchange in the United States, announced an 18% reduction in its workforce, blaming the crypto winter. Apparently, the price is not so irrelevant.
Microstrategy is in red. El Salvador is in red. The creditors of both must not be very happy at the moment. If you’re up to your neck in debt and you’re in the red right now, your “I’m fine” is not very convincing. Reading social media, Bitcoin seems more like a “doomsday cult” than an investment asset. Fanaticism is sometimes just too much. Some live in a fantastic world leaving reflection aside to repeat slogans over and over again. “The price doesn’t matter”, “1BTC = 1BTC”, “The pump will always happen”, Etc.
Bitcoin is a code in a computer network. It is not a supernatural object. The code is not eaten. Nor can it be used to build a house. That code represents an exchange rate. Nothing more. The person who put money into Bitcoin in the last few months is in the red right now. If you went into debt to buy like Microstrategy, you should not be very calm. We don’t know for sure how long this crypto winter will last, which means creditors may get paid before the rebound. Many investors are not buying the dip, because they think there will be more dips in the future. This promises to be a long and painful winter.
In conclusion, the volatility of Bitcoin is not something to be taken lightly. It must be taken very seriously. It’s not a joke. Nothing is safe with Bitcoin. And we cannot overestimate our luck at any time. Be very careful with debts. It is very important to design a diversified and balanced portfolio, weighing risks and opportunities. Winter cannot find us naked. This normally means that we also need stable assets in our investment portfolio to be able to wait calmly and without pressure for the eventual recovery of prices.
Excess faith is a danger. Doubt is usually much healthier. Personally, I love Bitcoin. But my devotion is limited. My love is not eternal and unconditional. And I don’t consider myself enlightened as lights coming out of my eyes. My priority is my pocket. A code in a wallet doesn’t do me much good if it doesn’t directly enrich my lifestyle. I do care about the price of Bitcoin. Easy. With an expensive Bitcoin, you can buy more things. And a very cheap Bitcoin is not much use to me without fiat to buy more. That means I took profits on up cycles and never run out of fiat on down cycles.
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