The cryptocurrency world is still in a state of shock, and anxiety looms as the price of Bitcoin continues to nose-dive in the early month of 2022. The downward trend, which started in November 2021, continues until January 2022, raising concerns among keen observers of the crypto market. The recent steep reduction is associated with many factors, such as the US government regulation of digital assets. This speculation has led some traders to sell their Bitcoin, thereby dropping Bitcoin value by half.
Traditional assets
Over the years, bitcoin has gained worldwide recognition and adoption. There is a correlation between the price of bitcoin and traditional assets like stock. It means that whatever changes the stock market price will trigger a change in bitcoin price. The uptrend is not a new cliché in the crypto market space. Bitcoin still holds its value so high. The S&P 500 is down 7% in 2022, with the Nasdaq and the Dow suffering drops of 12% and 4.4% over the same period. It is to indicate a correlation between stock and bitcoin.
Bitcoin as a risk asset
The world's most recognized cryptocurrencies, Bitcoin and Ethereum, are most affected by govt policy, while other little-known crypto prices might not change. Bitcoin investors can monitor related development between bitcoin and the broader financial market.
Bitcoin is highly volatile, and anyone who cannot cope with the risk that comes with bitcoin should not invest in it. Bitcoin had such an experience of a drastic fall after a rise multiple times over the years. For example, in 2009, bitcoin experienced a 50% drop from a prior all-time high, and bitcoin fell in July 2021 after China cracked down on mining digital currencies.
Why Own Bitcoin?
Buying, mining, and bitcoin are the things of the tech-savvy who are also known as the first adopters. Then came the journalist who broadened the readers' minds on using bitcoin to trade dollars and dollars to trade bitcoin and then trade bitcoin for products. Over the years, bitcoin has gained value and recognition through relatively secure exchanges like coin base. Bitcoin has equally maintained an impressive growth rate from 8,400 to 36,000 that it is today.
The point is that the price cannot keep up the impressive form. Many factors will put such a tremendous growth on checks. By owning a bitcoin now, it is believed that the speculative trend has not reduced, and you will be able to sell once again when the price is much more than you bought in the first place. Unfortunately, recent evidence shows this is not always the case.
Why Bitcoin drops
The government enacted some measures that controlled inflation. It, in return, has affected the price of bitcoin. The United States Federal Reserve is also becoming more fiscally conservative, which has taken a toll on bitcoins, leading to the drop in recent weeks.
Russian and Ukraine
The heightened tension with Russia over its military build-up around Ukraine is also a factor to be considered one of the reasons for the drop of bitcoin in 2022. Geopolitical concerns are a major driving force regarding market volatility in many tradable asset classes.
China bans Bitcoin mining.
Countries like China have dealt a significant blow to Bitcoin mining in its Sichuan province to shut down and told banks supporting crypto transactions to stop. Now People's Bank of China has banned digital coins after announcing all transactions of cryptocurrencies are illegal. The decision has already made a negative impact on the global crypto market.
Tesla stops accepting Bitcoin.
Tesla also made a U-turn on accepting Bitcoin as payment for its products, resulting in the bitcoin crash. In a Twitter post, Tesla owner Elon Musk reaffirmed his belief that cryptocurrency has a "promising future," but not at the expense of the environment. However, the billionaire entrepreneur was coated, sayings: "We are concerned about rapidly increasing use of fossil fuel for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel."
Bitcoin investors are panicking.
There are concerns that investors are pretty worried about the outlook for bitcoin and cryptocurrencies. For example, the investment bank published a note looking at whether there is a crypto-winter (a period when prices fall sharply and refuse to recover for more than one year) already. Furthermore, in 2022, an increase in the interest rate from the Federal Reserve United States could affect cryptocurrencies such as bitcoin in the eye of investors.
Bitcoin investors need not panic.
It is tough to predict the price of bitcoin among other asset classes because bitcoin is the most susceptible of all cryptocurrencies.
The bitcoin investor need not panic about the recent market sell-off. However, it is expedient to understand how the bitcoin price behaves in the market. The cost of bitcoin and traditional assets tends to move in a similar direction concerning government regulation and policy changes.
Do not put your eggs in one basket.
Bitcoin is not supposed to be your overall investment portfolio. It would be best if you had another investment portfolio that is easy to understand. However, it will keep you on track for core financial goals, so you stand in a good position for long-term healthy retirement.
Despite the volatility and recent drop in bitcoin price, some school of thought still believes that bitcoin is on its way to passing the $100,000 mark. However, there are various opinions about whether this holds as the panicking is getting hold of investors in crypto. As a result, investors are cautious in allocating part of their portfolio to cryptocurrency.
Conclusion
The fact is that Bitcoin hasn't proven itself to be much of a hedge against anything. After all, with inflation at four-decade highs, you'd expect a currency that claims to maintain its buying power and be independent of any central bank to gain more followers. Wouldn't demand to be off the charts if this description portrays Bitcoin? Contrarily, Bitcoin appears to find adherents when the price rises and produces doubters when sellers dominate. Like a risk asset.
For more exciting blogs, click here.