Crypto Crash 2022: Should You Be Worried?
Bitcoin, the world's most valuable cryptocurrency, plunged to near $18,000 last week. It was $68,000 in November.
You'd think crypto investors would be more worried.
But some big names just shrug.
"If you look at Bitcoin over a time horizon of a one-month time frame, it looks like a volatile risk asset; however, if you look at Bitcoin over a ten-year time frame, it looks like a risk-off store of value asset" (Source: Michael Saylor interviewed on NBC https://www.youtube.com/watch?v=1r23Wv_OzYo)
Why does he seem so unconcerned?
The Upside & Downside Of Volatility
In crypto, there can be both significant drops and significant gains. This sector has more volatility than conservative investment classes, like banks or commodities.
In the past ten years, downturns have seen Bitcoin lose more than 80% of its value at times, yet the coin bounced back to reach all-time highs of 68K last year. This asset class has posted massive gains compared to more conservative assets.
Short-term traders enjoy rapid price movements as they attempt to make money buying and selling on the swings. However, these volatile movements can be unsettling for conservative investors.
Some investors can't take the heat and exit their investments during market downturns. Investors who have ignored short-term market fluctuations and kept their eye on the distant horizon have done exceedingly well in Bitcoin over the past ten years.
We've Been Here Before
It's certainly been a wild ride over the past decade.
In January 2012, Bitcoin dropped 30%. In August of the same year, it fell -by 57% in just three days. Between November 2013 and January 2015, Bitcoin lost 87%. In 2017, between December 2017 and February 2018, Bitcoin was down -70%. One flash crash took the price down to just 1 cent! (Source: https://twitter.com/BookofNick/status/1538540104477822978)
Of course, the value skyrocketed from $5.27 in 2012 to $17,527 in 2018. It subsequently hit $68,000 last year. Today, Bitcoin is at $20 000.
Price volatility has long been a feature of bitcoin.
What's Causing The Volatility in 2022?
The economy is going through a rough period.
The S&P 500 is down 23%, and the Nasdaq has fallen 32%. High-flying tech stock Netflix is down an epic 70% this year. Leading tech innovator ETF- ARK - is down 50% in 2022.
Nowhere is safe. Even cash is being eaten by inflation. Many stocks are significantly lower than their opening price at the beginning of the year.
Many economists predict that the US is headed into a recession. Record-high inflation has stalled consumer spending. Consumer sentiment in the US fell sharply to a record low of 50.2 in June of 2022, well below market forecasts of 58. Gas prices at the pump have rocketed to an average of $5, there's an ongoing war in Ukraine, and the world is only just emerging from the costly Covid crisis.
The unfavourable underlying economic conditions are affecting everything, including crypto.
There have also been ructions within the crypto world. TerraUSD crashed spectacularly, Coinbase has laid off 18% of its staff and warned of a crypto winter, crypto lender Celcius overheated, and, of course, the inevitable flood of "Bitcoin is dead" articles came charging out of the gate, sending many retail investors to the exits.
Blood On The Streets Spells Opportunity
Over the past ten years, when the markets have plunged, Bitcoin price has been down, Bitcoin has been declared dead for the 407th time, and all is deemed lost, those who made their fortunes in Bitcoin were quietly buying up big.
Many followed a simple, contrarian investor strategy articulated by Nathan Rothschild, a 19th-century British financier and member of the Rothschild banking family: "the time to buy is when there's blood in the streets". Buffet said, "Be fearful when others are greedy, and greedy when others are fearful".
They buy when the price is low. They buy during times like this.
It can be challenging to go against market sentiment, but those that have done so have had stellar results from bitcoin investment in the past. Of course, the past is no indicator of future performance, but if you’re one of those who can stand the roller-coaster volatility - enjoy the ride!