Why is Bitcoin Dropping Now?
The Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.
Recently, the largest cryptocurrency’s price hit a record high of more than $63,000 per coin in April, when the IPO of crypto exchange Coinbase helped catch the public’s attention. But the rally didn’t last long: Bitcoin’s price quickly dropped back down to around $30,000 in May.
The two potential reasons the bitcoin quickly dropped
- Electric vehicle company Tesla backtracked on a promise to accept Bitcoin as payment, and
- The chinese government cracked down on crypto.
The bitcoin prices are quickly dropped because of volatility is nothing new to Wall Street. But when a price can jump more than 70% in one month or lose half its value in just two days, it may make you wonder what’s driving these huge swings.Of course stocks can also be volatile, but their value is tied to something somewhat concrete: how a company will do in the future. There are ways to check up on how the company is doing, like studying quarterly earnings reports or checking to see how well a company’s products are selling in stores.
According to Hanna Halaburda,
“Bitcoin is more like gold, people buy it because they think the price will increase in the future. But that makes it a speculative asset and more susceptible to volatility since something as small as a skeptical tweet can lead to doubt and maybe spark a selling frenzy”
The gold is different. The gold has some value from its use in producing jewelry and electronics, but mostly its value is derived from the expectation that you’ll be able to sell it in the future.
The long term investment best way to handle Bitcoin’s massive volatility is probably to ignore it. Easier said than done, but looking at Bitcoin similarly to how you would stocks or bonds can help ensure you won’t blow a bunch of money on a risky investment.
Bitcoin has seen dramatic run-ups in price followed by some painful crashes but has consistently retained a significant portion of its previous gains every time it plummets. Since its inception, Bitcoin was the 1st digital asset to beget the current ecosystem of cryptos. For quite a while, it grew an underground following of investors who saw its future as a possible replacement to the physical monetary system.
Bitcoin is also still pretty new, having only been around since 2009. The market is still searching for an equilibrium price; some people think the cryptocurrency is underpriced, some think it’s overpriced. (When Americans were legally allowed to start owning gold in the 1970s, gold’s price was also highly volatile. The Volatility doesn’t always lead to a market crash and it’s not clear if the dynamics are different when it comes to cryptocurrency ,but it’s something for investors to keep in mind when determining how much of their portfolio to allocate to Bitcoin.
The bitcoin trading works by enabling you to take a speculative position on bitcoin's price movements with financial derivatives such as CFDs. These will enable you to go long and speculate on the price rising, as well as short and speculate on the price falling. Some professional active traders also use a technique called range trading, which requires picking a range at which they’ll buy and sell a stock over a period of time. The method allows you to limit total exposure by taking gains and “playing with house money” — your previous investing profit. when the market dips, says Jay Hatfield, chief executive of Infrastructure Capital Management. It could be useful for Bitcoin investors, he adds. Following the exact rules of range trading may require more time than you’re willing to spend watching prices if investing isn’t your full-time job and besides, Money doesn’t tend to recommend active investing for everyday investors but there are lessons from this technique you can use to minimize risk.
According to Hatfield says.
“This kind of risk management where you limit the size and take profits can be effective to avoid huge losses.”
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