As of this writing, Bitcoin is trading at $8,917 (and more than 19% from its all time high). If it crumbles, what will happen? Who knows? But it’s still possible, and if you’re invested in the currency, the best thing you can do is to understand how it works. We’ve put together a comprehensive piece of information that will help you better understand the basics of Bitcoin.
In January of 2017 , the Bitcoin price plummeted from $1,000 to a December low of $200, a decline of more than 75 percent. The world’s best-known cryptocurrency has had a tumultuous year. The price of Bitcoin has been stuck in a kind of valley from which there is no easy way out, for either speculators or holders.
Bitcoin, the digital currency that has gained mainstream popularity in the last year or so, has been a roller coaster for investors and speculators. Bitcoin has been experiencing a rough time lately as it’s been taking losses of up to 25% in a matter of days. Prices are now down over 50% from their all-time high as the end of 2017 drew near. The market is reeling from a number of factors, but the biggest headwinds are the concerns related to the scaling of the Bitcoin network, the long-term impact of the Bitcoin forks that occurred last year, and the regulatory uncertainty of the cryptocurrency space.. Read more about why crypto market is down today 2021 and let us know what you think.
In 2021, Bitcoin had a tremendous bull run, hitting $64,000 in April.
Due to factors such as the Chinese government cracking down on Bitcoin miners and “illegal traders,” Tesla’s recent decision to stop accepting Bitcoin as a payment system due to concerns about miners’ massive energy demands, and fears that Bitcoin was used to fund the Colonial Pipeline ransomware attack, the price of Bitcoin has dropped by nearly 50% since then.
Is it time to sell all of your bitcoin and invest in something more secure?
You’ll have to answer that question for yourself. While the price of Bitcoin has dropped almost 50% from its all-time high, I wouldn’t call it a collapse.
I recall when Bitcoin hit a fresh all-time high of $20,000 in 2017. Bitcoin’s value plummeted below $2,000 after that. This was a 2000% decrease in value. In 2020, the price surpassed $20,000 before reaching its current all-time high of $64,000.
When Bitcoin’s price plummeted from the $20,000 mark in 2017, I sold most of my holdings, while knowing deep down that it will ultimately recover to that level, if not exceed it, in the future.
It proved to be a smart choice, since it took almost three years for the price to rise beyond $20,000 and reach a new all-time high of $64,000.
Sure, if I had done nothing and kept my assets, I would not have lost any money, and it would have quadrupled in value to $64,000. Cashing out at the $17,000 mark, on the other hand, enabled me to purchase additional for as little as $3,000.
Whether you’re new to cryptocurrency trading or a seasoned expert, you may be wondering: What if Bitcoin falls again?
We’ll go over all you need to know about the Bitcoin market, what’s going on right now, and what could happen next for the world’s most valuable cryptocurrency in the sections below.
The Evolution of Bitcoin’s Price
Bitcoin’s price volatility is caused by a variety of reasons. Bitcoin is a digital currency whose value is determined by speculation. It runs on an encrypted network of computers that create a computerized ledger that keeps track of all transactions.
It’s known as the blockchain, and it’s a mechanism that makes counterfeiting and double-spending Bitcoin almost difficult.
The following are some examples of reasons that may cause Bitcoin values to fluctuate wildly:
- Potential investors are scared off by negative press: Governments adopting a strong approach against Bitcoin, as well as unscrupulous actors fabricating unfavorable stories, may deter prospective investors. For example, the Mt. Gox exchange hack, which resulted in many customers losing their Bitcoin and other cryptocurrencies held on the site, caused Bitcoin’s price to plummet from over $1,000 to about $200.
- Changes in Bitcoin’s perceived value: One of the characteristics that distinguishes Bitcoin from other currencies is its limited quantity of 21 million units. As a result, it is less prone to inflation than fiat currencies, which are controlled by governments. People are more inclined to invest in Bitcoin and other cryptocurrencies if governments try to solve economic problems by issuing more fiat currency. This is impossible with Bitcoin because once the first 21 million coins are created, no more can be generated. Currently, there are slightly around 19 million bitcoins in circulation.
- The whale effect: Bitcoin has yet to achieve a mass market level where investors with large holdings ($10 million+) may buy and sell without causing the market to move. Orders for such huge quantities of Bitcoin now cause the market to swing significantly in either way.
Markets: Bull and Bear
When prices continue to rise over a length of time, usually a few weeks, a market is bullish. A market is bearish when prices have been trending downward for the same length of time. Other variables to consider while determining if Bitcoin markets are bullish or bearish include:
- Bitcoin’s price fluctuates by more than 20%.
- Within a few weeks, the price does not return to the low or high that preceded the price fluctuation.
Despite the many bull and market seasons it has seen over the years, Bitcoin has remained on an upward trajectory.
In 2014, Bitcoin reached its first major all-time high, surpassing $1,000 per Bitcoin. The price subsequently plummeted to $200, driven by concerns sparked by the Mt. Gox hack. The bear market continued until late 2015, after which prices began to rise.
The bull market continued until late 2017, when Bitcoin surpassed $20,000 for the first time. When bitcoin prices fell to about $2,000 in 2018, investors turned pessimistic once again.
Prices rose to $11,000 in 2019, signaling the conclusion of the bear market. It was a short-lived bull market, as prices dropped to $5,000 at the start of 2020.
Between then until April 2021, Bitcoin had a tremendous bull run, with values reaching over $64,000. Since then, the price has fallen considerably, and Bitcoin now trades for little over $30,000.
What’s the Difference Between a Crash and a Price Adjustment?
Although the terms “correction” and “crash” are often used interchangeably, they have distinct meanings.
When the price of a stock or cryptocurrency falls by more than 10% in a 24-hour period, it is called a crash. Typically, these occurrences are sparked by unexpected developments or news that shocks investors into selling in large numbers.
Cryptocurrency price fluctuations may be caused by a variety of technical reasons, but the largest ones have been fuelled by negative changes to laws and policies governing Bitcoin’s usage, negative publicity that scares investors, and macroeconomic events.
One of the most major Bitcoin collapses happened when the US Financial Crimes Enforcement Network shut down Bitfloor and stated that cryptocurrency exchanges accepting US customers would have to register as “money transmitters” in order to remain in operation.
Bitcoin’s value plummeted by almost 73 percent in 24 hours, from about $259 to $70. When the World Health Organization proclaimed a worldwide pandemic due to the COVID-19 virus in early 2020, Bitcoin collapsed again, losing roughly half of its value.
When the value of a stock or cryptocurrency decreases by more than 10% in a few days, it is called a price correction. It’s usually an indication that optimistic traders have run out of steam and there aren’t any fresh purchasers to keep the rally going. When a consequence, as sell orders build up on the order books, prices begin to decline.
Minor events such as bad news may impact corrections, but technical reasons such as high resistance levels, declining trading volume, and indicators such as Bitcoin’s Relative Strength Index are more frequently to blame (a price momentum indicator used to determine if an asset has been oversold or overbought).
Using Crashes and Corrections to Your Advantage
It’s hard to overlook the overall rising trend on any long-term Bitcoin chart. While unexpected collapses and market corrections may cause novice investors to liquidate their holdings, smart traders like myself see them as opportunities to acquire more at lower prices. Always invest only what you can afford to lose.
It all boils down to knowing when prices have hit their lowest point and estimating how high the price of Bitcoin will rise in the future.
When purchasing cryptos during a downturn or collapse, I prefer to divide my investing money into at least four pieces. There are no assurances that your forecast will be accurate, regardless of how skilled you are at analyzing charts.
If prices fall after you’ve made your first purchases, you’ll still have enough money to buy more at the new low, increasing the value of your portfolio.
For the purpose of simplicity, let’s assume you bought four Bitcoins for $100 apiece. If the value of each BTC falls to $50, you will have lost half of your original investment. You may now buy two Bitcoins for $50 each if you split your investment money into at least four pieces and only purchased one Bitcoin with $100.
With a $200 investment, you may buy a total of three Bitcoins. You still have $200 left over to buy more if the price goes any lower.
Let’s suppose the price drops even lower to $25. At that pricing, you can now buy four Bitcoins for $100. You now have a total of 7 Bitcoins, and you still have $100 left over from your $400 investment money. If Bitcoin prices recover to $100, you now have $700 in your wallet, more than tripling your investment.
If you had spent your whole $400 on four Bitcoins when you first chose to buy the dip, you would have simply broken even.
When it comes to purchasing on a downturn, smart money management is crucial. Only purchase on a dip if you’re sure a stock’s or asset’s future worth will be higher than what you paid for it.
The following are some of the reasons why a rising number of investors think Bitcoin and other cryptocurrencies will be worth much more in the future:
- Bitcoin creators limited the total amount of Bitcoins that would be produced to 21 million, ensuring that it has a fixed supply. Basic economics tells us that if the supply of Bitcoin is fixed, prices will continue to increase as demand grows.
- Significantly simpler to transfer: The previous time I needed to make an international wire transfer, I had to spend time speaking with a representative, barely managed to avoid having to walk down to the bank in person, and I spent over $35 in fees. The money likewise took three days to reach the individual I gave them to. Bitcoin and other cryptocurrencies are a more convenient and cost-effective alternative. Regardless of the amount being sent, transactions may be completed in as little as a few minutes.
- Counterfeiting is almost impossible: One of the criteria used to determine whether or not something is a legitimate currency is how difficult it is to counterfeit. Bitcoin is protected by an encrypted blockchain, making counterfeiting and double-spending nearly impossible. Spending the same Bitcoin twice is referred to as double spending. To avoid this, the blockchain verifies each transaction with the blocks before it.
- Divisibility: To be an effective medium of trade, a money should be simple to break down into smaller pieces. Most fiat currencies, such as the United States dollar, may be split into 100 smaller pieces. A single Bitcoin may be split into as many as eight decimal places. It’s called a Satoshi since its numerical equivalent is 0.00000001 BTC. As a result, it’s a great method to express the worth of any products or services on any market. It has a higher divisibility than any contemporary fiat money.
- Durability: Fiat money may be readily destroyed by chopping them up or burning them, while Bitcoins are irreversible. You won’t lose your Bitcoins in the event of a home fire or a boating accident. If you lose your private key and any relevant information needed to access your wallet, you may lose your Bitcoins. Those Bitcoins, on the other hand, would always reside on the blockchain. You just wouldn’t be able to see them.
- The ease with which a currency may be used to buy or sell goods and services is referred to as utility. Bitcoin may be just as handy as fiat money in certain circumstances, such as when making online transactions. When it comes to person-to-person transactions, however, fiat currencies still have the utility edge. It’s far simpler to tip the pizza delivery guy with a $5 bill than it is to find their Bitcoin wallet address and transfer $5 in Bitcoin there.
- Limited regulation: Obtaining a bank account requires the completion of paperwork and the submission of papers such as your driver’s license and Social Security card. You may have to wait a few business days to find out whether your account has been authorized in certain instances. With Bitcoin, everything runs much more smoothly. Anyone may create a secure wallet for free and use it to make transactions or receive payments. Unbanked individuals may use cryptocurrencies to make worldwide commerce.
The benefits that Bitcoin and other cryptocurrencies offer over fiat currencies have been major reasons in Bitcoin’s upward trajectory since its creation. Bitcoin outperforms fiat currencies in terms of criteria used to determine what constitutes a sound currency.
Bitcoin’s Disadvantages That Must Be Overcome
Bitcoin now accounts for approximately 1.7 percent of all worldwide transactions, with speculators predicting that figure to rise.
However, there are a few problems that have surfaced. The speed with which these problems are addressed will very certainly have a long-term effect on Bitcoin pricing. The following are some of the most visible problems impacting the usage of Bitcoin:
- Mining requires a lot of energy. Bitcoin consumes a significant amount of energy, accounting for approximately 0.55 percent of world energy output, which is mainly derived from fossil fuels. Its miners use more energy than Argentina and the rest of the world combined. The need for electricity has grown as Bitcoin values have risen, since there is more incentive to mine.
- Trapped transactions: While most Bitcoin transactions are completed in seconds, certain transactions may get stuck on the blockchain and take much longer to confirm. I once waited for a transaction to be confirmed for more than 24 hours. Sending with proper fees (a portion of the transaction that miners keep for enabling it) reduces the chances of a transaction being struck, but it’s always possible.
- Prices are determined by speculation rather than actual assets: Traditional investments, such as stocks, are valued based on variables such as the assets, products, and history of the business. Bitcoin values are entirely speculative, meaning they are determined by what the majority of people believe they should be. As a result, the price of a Bitcoin may one day be zero. While this appears improbable (considering the benefits Bitcoin offers over fiat currencies such as divisibility, greater privacy, and transferability), it is always possible that a superior virtual cryptocurrency may be created in the future that does not have any of Bitcoin’s disadvantages. I believe it will happen in the future, and I believe that a better virtual currency than Bitcoin has already been developed. Ethereum, in my view, is a better cryptocurrency because of its smart contracts, which transform it into something more than a money. I wouldn’t be shocked if Ethereum ultimately overtakes Bitcoin as the world’s most popular cryptocurrency.
- Governments that are hostile to Bitcoin and other cryptocurrencies: Governments all over the globe continue to be a significant obstacle for Bitcoin and other cryptocurrencies. The Chinese government recently said that it will pursue Bitcoin miners and illicit traders, causing a selloff and displacing miners. Bitcoin is a significant danger to fiat currencies across the globe, and more countries are expected to adopt hostile positions against it, while others, such as El Salvador, welcome it as official legal money.
- Concerns regarding connections to criminal activity: Criminal groups have recognized the effectiveness of cryptocurrencies such as Bitcoin in moving money worldwide. News reports linking significant criminal activities, such as the hacking assault on the Colonial Pipeline, are usually negative for Bitcoin values.
What Should You Do If Bitcoin Prices Drop?
It’s a question of when, not if, prices will collapse. Crashes and corrections, like bull and bear runs, are normal elements of the market cycle. The first step is to determine what is causing the problem. A sudden drop in pricing may be a sign that prices are about to soar, and you don’t want to lose out on that.
Once you’ve recognized a crash, there are a few things you should think about doing to take advantage of the price drops:
- Don’t get alarmed; instead, evaluate the market. Never be scared into doing anything stupid by a lot of red candles. Remember that Bitcoin and other cryptocurrencies have a long-term rising tendency in their values. Of course, saying it is easier than doing it. I recall the first time I bought an altcoin (a cryptocurrency other than Bitcoin) on a cryptocurrency exchange. I’m not even sure which coin it was now. I was still new to investing at the time, so I panic-sold all of my assets after seeing prices collapse by almost half. I felt I deserved to lose since I had done so little study on cryptocurrencies. You can imagine my annoyance when I saw the price had risen by 600% a week later. That day, I learnt two important lessons: Never purchase a cryptocurrency without first studying it, and never sell in a hurry.
- Make a list of your objectives. They must be precisely specified. Switching back and forth between long- and short-term trading methods will do more damage than good. It’s one of the first things I learnt when I started trading cryptocurrency. I had a terrible tendency of hanging on to short-term transactions for far too long, resulting in their becoming long-term investments. I was obliged to cash out these forced long-term transactions at unprofitable prices in certain instances so that the money might be put to better use. Your danger of huge losses during crashes and corrections is reduced if you clearly define your investing objectives. As a short-term investor, you might, for example, pay out your investments at the first indication of danger. When compared to gains earned from previous transactions, the small loss in value owing to falling prices should be negligible.
- If the market has collapsed and you’re feeling pessimistic, consider selling a large part of your assets. Then, if you believe the price has hit a bottom, divide your investment money into at least four parts and begin purchasing back more Bitcoin.
- Long-term investors don’t have to do anything if they are risk-averse, but selling off and buying more at a cheaper price allows you to increase your holdings. Be prepared to hold on to your Bitcoin for up to three years. You might have to wait that long before the price gets back to the high before the crash
- Price fluctuations may still be profitable for short-term traders. When the market is bearish, prices will continue to rise and fall, so buy cheap and sell high.
It’s all part of the market’s natural cycle.
When trading equities or assets like Bitcoin, you will constantly have to deal with crashes and corrections. A crash occurs when the price of an asset falls by more than 10% in less than 24 hours, while a correction occurs when the price decreases by more than 10% over many days.
The recent price drop in bitcoin has certainly cost some investors money, but it has also provided chances to purchase more.
The natural market cycle includes bull and bear cycles. The former denotes a market that has been trending upward for at least a few weeks, while the latter denotes a market that has been trending downward for at least a few weeks.
Given all of the recent negative headlines about Bitcoin and other cryptocurrencies, such as China’s intention to clamp down on miners and innovative businesses such as Tesla choosing to stop accepting Bitcoin payments, the price of Bitcoin has held up quite well.
It shows that many investors trust in the cryptocurrency’s long-term sustainability and development. Bitcoin prices are expected to increase in the long run, according to long-term price charts.
“Be afraid when others are greedy and greedy when others are scared,” says Warren Buffett.
The truth is that Bitcoin is a fantastic alternative to fiat currencies because of its transferability, divisibility, and fixed quantity. Due to the minimal regulation that exchanges must go by, it is also simpler to invest in Bitcoin than conventional assets such as equities. There’s no need to be alarmed because the market is experiencing a downturn.
The Bitcoin market may be negative for the time being, but if current long-term price cycles continue, it will most certainly recover and reach new all-time highs. Always invest just what you can afford to lose, and remember to divide your money into at least four pieces so you may buy more if prices go any lower.
- Keeping Your Crypto Assets Safe
- The Top 5 Investing Apps That Will Make Your Next Crypto Investment a Success
- Cryptocurrencies Taught Me 3 Harsh Financial Lessons
What Happens If Bitcoin Crashes Again? first published on Minority Mindset.
People are still trying to figure out what Bitcoin is, and what it means for the world of finance. That makes sense, because the digital currency was created in 2009 by an unknown person or persons calling themselves Satoshi Nakamoto. Since then, it has grown into a multi-billion dollar industry, but the many risks involved in using the network have created challenges for both investors and businesses.. Read more about is bitcoin going to crash 2021 and let us know what you think.
Frequently Asked Questions
Can Bitcoin ever crash?
Bitcoin is a decentralized currency, meaning that its not controlled by any one country or bank. This makes it very difficult to predict when the price of Bitcoin will crash.
Do you lose money if Bitcoin goes down?
No, I am not a financial advisor.
What happens if my bitcoin goes negative?
If your bitcoin goes negative, it means that you owe more money than you have.
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