Will the price of Bitcoin keep dropping?
Fear floods the corners where there was only greed and now many do not know what will happen to the price of Bitcoin.
Panic spreads like a virus. A few weeks ago, the market believed itself invincible. The possibility of a crash was ruled out, because blind greed. However, the crash finally came. Now we fell to the other extreme. Fear invades us and now we are paranoid. Will the price of Bitcoin keep dropping?
Predicting is to investments what superstition is to religion. We all know that no one can predict the future. Analysts do not know for sure the future of the price. Yet everyone makes predictions. They are simply irresistible. The whole thing is a double-edged sword. If, in an article like this, the writer does not speak with absolute precision about the future of price, the reader questions his wisdom. On the other hand, the columnist knows that he should not speak precisely, because doing so is practically lying. The problem is that a sincere article is the least the public wants.
Predictions are popular because they get a lot of likes. Here is the temptation. The predictions exploit investors’ desperate desire for certainty in an uncertain world. But here’s a secret: They are all bananas. The predictions are a fraud. Of course, the irony comes when we recognize that investing is a bet on the future. It is assumed that we buy cheap today thinking that in the future the price will rise. That is the essence of the business. So today’s price depends a lot on our assumptions about the future. What forces us to make certain projections. But here we are more before the reading of trends and the study of probabilities than of predictions per se.
How to invest without making predictions? With strategy. The question does not revolve around the price of Bitcoin tomorrow, next week, next month, or next year. The big question must revolve around the appropriate action for today. Three: Buy, Sell, or Hold? It’s about weighing the risks and the opportunities. What was our purchase price? Have we already recovered the initial investment? Can we afford to wait any longer?
Basic Principle: The higher the price of an asset rises, the riskier it is. Which implies that Bitcoin at $ 60K is riskier than a Bitcoin at $ 30K. Buy, hold or sell? I would say that the balance at this point is tilted towards buy and hold. Selling would be crazy. What if the price keeps falling? That would be even less risky. Which would put the balance more towards buying and holding.
Now, why the current panic? It might seem counterintuitive to invest against the sentiments of the majority. Many believe in the presumed wisdom of the masses. But the truth is that the masses tend to be irrational. Above all, in the short term. In fact, panics are often temporary. What usually happens is that the masses tend to overreact to the possibility of adversity, but paradoxically they tend to overcome real adversity with surprising adaptability. For this reason, it is much easier to project long-term trends than short-term trends. Because the short term is too emotional.
The markets right now are in transition, because we are entering the post-pandemic stage. We are experiencing a rotation. The economy is gradually returning to normal. Which, on the one hand, is raising concerns about inflation and, on the other, is revitalizing the sectors most affected during the pandemic. Investors are cashing in on their earnings in the tech sector to invest in the “value” sector. For example, Tesla is being sold to buy McDonalds.
Since the Federal Reserve of the United States began to inject liquidity into the system left and right, there has been talk of an overvaluation of the markets. Particularly, in the actions called “Growth stock”. The Big Tech, especially, grew a lot during the pandemic creating a spectacular speculative boom. Bitcoin benefited a lot, because in the minds of investors, Big Tech, Fintech, and Crypto fall practically in the same bag.
During this market rotation, however, Bitcoin has taken a heavy hit, because the market is becoming more conservative. That is, production and value is replacing speculation and growth. Investors are avoiding taking more risks in the technology sector, because the more traditional sectors are offering great opportunities right now. A movie chain, a hotel network, or an airline, currently undervalued due to the pandemic, may be offering more opportunities than an already overvalued Big Tech.
Now, this can be quite strange, because from the beginning, Bitcoin has been presented, by crypto libertarians, as an essentially conservative asset. A “digital gold” safer than gold and the dollar, designed to protect us from inflation. Well, ladies and gentlemen, I’m afraid this is a pipe dream. For now, just an aspiration. The reality is that Bitcoin is a highly risky speculative asset. Investors flock to Bitcoin to make big money. Not to reform the world monetary system and establish the libertarian utopia. The asset is highly volatile. Very dangerous. Due to its compartment in the portfolio, it looks more like Tesla than a “safe” asset like a Treasury Bond or gold.
Annual inflation (US) stood at just over 4%, but Bitcoin in a matter of days lost 50% of its value (taking its maximum). As much as crypto libertarians insist on portraying one of the most volatile assets in existence as an oasis of security and stability, investors are not so naive. Volatility is risk. And, in uncertain times, investors often avoid risk. They become more conservative. Buying dollars, euros, gold, Treasuries, defensive stocks, “value” companies. As simple as that.
It could be said that this transaction period, which is creating so many uncertainties, will not last forever. Sooner or later, we will adapt. The sectors today in decline will surely begin a new period of rediscovery of prices. More data will arrive that will clarify the panorama. Will the Federal Reserve change monetary policy? Will you be forced to raise rates?
We could assume that the post-pandemic will bring with it a significant increase in consumer spending. Surely, people will start spending and traveling after a couple of years of limitations. That phenomenon will definitely increase corporate revenue, driving great economic growth. While it is true that the current market rotation is hurting Bitcoin, sooner or later a strong and growing economy means optimism and eventually a higher tolerance for risk. Which would be very positive for Bitcoin in the long run. The price may continue to drop. But this, if it turns out to be true, is not necessarily bad news. In fact, it would be a great opportunity.
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin