Bitcoin: A Time to Panic Or Buy?

We are once again at a critical impasse for the cryptocurrency market.  This week we saw bitcoin drop by nearly 10%, and altcoins were even dipper in the red.  The market sentiment has once again become bearish; there is a lot of fear in the market right now.  People are worried that potentially this bull market is at an end, and it could be years until we even think to begin dreaming about new all-time high prices. From this point will prices recover, or will we go down even further?  No one knows for certain, as it could honestly go either way. But, remember that in the cryptocurrency market, and investing in general, that knowledge is power.  And there are some things that you need to know.

Let's dig into this more.

As you can see from the picture above, the market is in extreme fear.  People are worried that the show is over, and that they should pack things up until the next bull cycle begins in a few years.  To that, I say not so fast.  While it's perfectly normal to be feeling very bearish at the moment, even I have had some bearish thoughts. But, the point is that there are real reasons for why the prices in the crypto market are dropping. Specifically bitcoin. 

While the USA isn't the only country in the world, the actions the country takes has a huge impact on the rest of the world.  That's largely because it is the largest financial player in the game.  And the decisions they make often will influence other countries to also follow through and make the same decision.  This week the FED announced that they were going to try to get their balance sheet under control.  Admitting that inflation had gone above their expectations and they need to reign it in by increasing interest rates. And that is why the price of bitcoin dropped down to around $42k. This news caused many people to panic and feel that the next crypto crash is surely on the horizon.  But the interesting thing is that this is a move that everyone knew was going to happen.  The FED had already previously announced that they would be raising interest rates in 2022 to tackle inflation and help to balance the bottom line.  So essentially, they were just repeating that same intention once again here.  Even though they were just repeating this, it still caused panic and for financial markets to drop.  People live in their own worlds, and have a very short memory.

In fact, while regular people are just waking up to the fact that inflation is a real problem that can directly affect them.  Finally noticing that the goods that they buy have become more expensive. Bitcoiners have been screaming from the fences since its creation about the threat of inflation and also the harm that the government was doing to the economy.  We were all hoping that bitcoin would be the SOV (store-of-value) option that would allow you to escape from the system.  Finally having an asset that in non-correlated to the rest of the market.  Unfortunately, bitcoin is just not to that point in its life-cycle yet.  Although it soon will be.  It just needs to grow a little bit more first.  The fact of the matter is that when there is some sort of panic, the first move that currently takes priority is the move to cash.  The real thing to watch is the follow up to the event.  What things recover and begin to take off the most afterwords.  

For example, look back to when all financial markets crashed in March of 2020, due to the initial covid panic.  The asset that crashed the hardest was bitcoin and cryptocurrency.  The reason for this might be that bitcoin is extremely liquid and easy to sell out of.  Or the other possible reason is that bitcoin was still quite young and had not been tested during any kind of financial turmoil yet.  The trust had not been formed yet. But, now look to what happened since March 2020.  The stock market is about the same to maybe double if you are lucky.  Gold has done next to nothing.  But, bitcoin is up more than 12x from that dip price.  Bitcoin and crypto reacted the best out of all the major asset classes.  

Now fast-forward to today and the whole situation might just be repeating again.  It is possible that things could drop even further before they begin to go up again.  If the scenario is to repeat and there is a financial market rush towards cash.  Yes, stocks will drop, but perhaps crypto will drop even further.  I would wager that it is also much more likely that bitcoin will see the largest recovery after the crash out of all the major asset classes.  Just like in 2020.  

What should you do with this knowledge?

While this is not financial advice, I will tell you my own personal story.  Before 2020, I had been in crypto for a few years and had what I considered to be a pretty decent portfolio. But it wasn't anything that would be life changing.  But after the crash in 2020, I literally went all into bitcoin, ethereum and a few other things. With the market recovering the way it did, it changed my financial fortune forever.  If the market drops even further, this could become just as great of an opportunity to change your life as well.  It isn't without risk though.  Nothing is guaranteed, especially when it comes to crypto.  Always remember that coins may never recover, and that is the risk we take.  Only invest what you can afford to lose.  With that said, having cash on the side to take advantage of these possible major dips is the best possible thing that you can do right now to set yourself up for success.  

Take this with a grain of salt.  After all this bearish sentiment could just be a thing of the moment.  Especially with the way that the omicron variant is spreading.  I would not be surprised to see the FED go back and change their plans, or even to print money again.  Or, if the markets do collapse in a major way, I wouldn't be surprised to see them jump in again to try save the day.

What are my thoughts on this?

In the short-term I am skeptically bullish.  For quite a while I had been expecting that the crypto market would see prices drop during the month of January.  That was expected in my opinion.  Other experts such as Raoul Pal has been stating the same sentiment for months as well. But, after this short time period of maybe a week, two weeks or maybe even until the end of January, I see the market recovering in a big way.  Longer-term, I am as bullish as ever. I believe that we will hit those lofty price predictions that could potentially change your life.  The real question is when that will happen? This year, next year, or even the year after? One thing is for certain, this bull cycle has been unlike any that have come before it and the game has been changed forever.

My final thought is this. Always make sure to do your own research and build your own conviction.  If the market is making you scared and considering selling; it is possible that you are over-your-head and invested too heavily into the crypto market.  Or you're paying too close of attention and it might be a good idea to take a step back and take a short break.  If the market goes up or down, either way I will be extremely happy.  If prices go down, it will be an amazing chance to accumulate more. If it goes up, that will make my portfolio look much nicer.  If you are wanting to be successful in the crypto market, this is the mindset that you need to have, and it will make life much less stressful in this environment.

How about you? What do you think will happen with bitcoin? Are you feeling bullish or bearish?

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As always, thank you for reading!