Recently there has been a decline in the price of bitcoin and altcoins. The price of bitcoin dropped from $63K to around $30k. This dip has left a lot of people confused about the fate of cryptocurrency.
Before the bear run, people were rushing into the crypto market and lots of newbies were interested in learning how to buy bitcoin. But the narrative has changed. People have said lots of things about cryptocurrencies on social media. Some said it looks like it is over for bitcoin, while others are predicting the price of bitcoin to fall to $10,000. With all these being said, is this the end for bitcoin and every other cryptocurrency? Is there room for cryptocurrency in the future? What lessons have we learned from the decline in price?
Bitcoin is unregulated and the price is controlled by the forces of demand and supply. Whenever the price goes up, it means the demand for it is increased thereby causing an increase in the price. People can’t keep buying without selling, they will want to sell at some point to take their profits. But when the sellers outweigh the buyers, there will be a fall in price.
Although, its recent price fall was triggered by Elon Musk when he said he is stopping all forms of payment for Tesla using bitcoin because BTC mining isn’t environmentally friendly. The bear market was further cemented by the cryptocurrency ban in China.
There are two major lessons to be learned from the recent price fall of bitcoin and there are about three other lessons that can be derived.
Find out about the crypto investment strategies that you can use to reverse some of your bad trading decisions.
Let’s dive into these lessons –
1. Bitcoin is king
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The recent fall in the price of Bitcoin has made us realize that bitcoin is an important factor in the crypto market. Whenever its price falls, the price of other coins follows suit. The bulk of the transactions taking place in the crypto market is done using bitcoin and it holds the highest fraction of the market capitalization.
Bitcoin is the first successful cryptocurrency and has thus gained the confidence of the masses. Institutional investors and businesses adopt bitcoin before they incorporate other cryptocurrencies. This is because bitcoin has proved to be a safe investment tool and an acceptable means of exchange.
2. Bitcoin is volatile
Bitcoin is very volatile and can be influenced by lots of factors ranging from the news, media, government regulation, celebrity adoption, technicality, and insecurity. It’s always advised that investors should only invest the money they can afford to lose and don’t FOMO into the market. Conduct adequate research before entering the market, and it is very pertinent for you as a trader to always take profit because of the volatility and uncertainty in the market.
3. Bitcoin has crashed before but has always bounced back
Another important point to note here is that history repeats itself. The percentage of the drop of bitcoin is around 57% which is even lower when compared to that of the past. In the past, the price crashed over 60% and subsequently retraced to its former price and even attained new All-Time-Highs (ATH). This bear market will surely pass and become history.
The recent bitcoin crash is definitely nothing new. Since 2012, Bitcoin has crashed by more than 80% on three different occasions. Therefore, the current dip is mild compared to previous bear markets. The rationale for bitcoin acceptance is its use case as an exchange and store of value.
Whenever an event puts bitcoin’s future in doubt, the demand is suppressed and a crash follows. Going by the previous bear markets, bitcoin could fall by as much as 80%, going below $15,000.
Bitcoin halving occurs every four years and a bullish run follows every halving event. Traders and investors anticipated that 2020 was going to be a year of massive gains and they were not disappointed. Comparing the price of bitcoin before last year’s bitcoin halving ($8,061) to the all-time high it achieved in 2021 ($63,000), Bitcoin recorded a whopping 632% price increase.
This proves that the current bear market is not the end of bitcoin or cryptocurrencies. Bitcoin will always bounce back and the market will recover. The bear market is a retrace for new price discoveries.
4. The best form of investment is long term investment
The best way to invest in bitcoin and cryptocurrencies is to have a long-term mindset. The primary purpose of a long-term investor is to buy low and sell high. A long-term investor won’t be distracted and be too concerned about the recent price fall because he has a target and he is not expecting to reach it in the short term, rather he will wait for a long period and accumulate massive profits.
The mistake people make when it comes to cryptocurrency and blockchain is that people invest for immediate returns. When you invest because of temporary profit, you tend to rush out when there is a price drop. However, the best is to invest or buy bitcoin and other coins because of their underlying technology.
What is the future of cryptocurrency?
Despite the bear market, people continue to buy BTC, businesses keep adopting cryptocurrencies and countries have started legalizing crypto assets. This shows that the future of cryptocurrency is as bright as ever. The president of El Salvador legalized bitcoin and even granted citizenship to bitcoin owners.
Nations across the globe are also working tirelessly on launching their own Central Bank Digital Currencies (CBDCs) to compete with cryptocurrencies. Many countries are putting policies in place to ensure that cryptocurrencies progress without jeopardizing the safety of their citizens. At this rate, cryptocurrencies could become the primary means of transaction in the near future.
It may be too early to predict the future of cryptocurrency because we are in an early stage of an evolving niche. However, cryptocurrencies will definitely disrupt the financial industry and serve as a change agent in different aspects of our lives.