Is now the right time to buy bitcoin?

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Bitcoin divides people like no other. While some will mourn their losses after last week’s stunning cryptocurrency crash, others will celebrate what they hope will be an end to this futile distraction. However, everyone will be wondering what will happen next.

Bitcoin fans are hoping last week’s sudden selloff is just a temporary setback and are wondering if they should seize the opportunity to buy more in hopes of making money from an equally impressive recovery.

Crypto critics may feel justified, but they may quietly wonder if they should buy some bitcoin, just in case.

So what are we looking at today – the actual death of Bitcoin or an unmissable buying opportunity?

Even by its fickle standards, the crypto world has gone crazy. Bitcoin is down 60 percent from its all-time high, dropping from $67,000 last November to $27,000 last week, with Ether, BNB, XRP, Cardano, Solana, Terra’s Luna and others also crashing.

The cryptocurrency sector has lost $1 trillion in market capitalization and, at the time of writing, is worth $1.3 trillion. But there could be worse in the future, says Sam Kopelman, director of global cryptocurrency exchange Luno in the UK.

He warns against rushing into buying the dip as bitcoin could drop to $20,000 before finding its floor. “This could be the start of a long-term bear market for cryptocurrencies.”

Kopelman blames the sell-off on a “chaotic mix of high interest rates, fears of an impending recession and military conflict in Europe.”

However, Bitcoin is not the only notable victim of these broader trends. And US technology stocks, the other big growth story of the post-financial crisis era, are also in a meltdown.

New York’s tech-heavy Nasdaq is down about 30 per cent this year — and the same forces are at play.

More than a decade of near-zero interest rates and billions of dollars in stimulus have inflated asset bubbles everywhere, but the era of easy money is now over, as the US Federal Reserve raised interest rates and cut stimulus in a belated attempt to rein in today’s rampant inflation. .

However, the cryptocurrency market has its own issues, says Vijay Valecha, chief investment officer at Century Financial.

The collapse of the stablecoin TerraUSD hit sentiment and accelerated the flight of digital tokens.

“Stablecoins are essential components of the cryptocurrency market, with traders stopping funds as they move to and from other tokens. This loss of confidence could be an existential test for the entire digital asset ecosystem,” warns Valecha.

Other factors driving the pullback include concerns about regulatory and security breaches, says Myron Jobson, senior personal finance analyst at Interactive Investor.

A string of cryptocurrency fraud cases has further undermined trust.

“Crypto Wild West’s reputation has been boosted by infamous news [Bulgarian] Crypto queen Ruja Ignatova has been added to Europol’s most wanted list to convince people that she invented a cryptocurrency to rival Bitcoin before it disappeared with billions of dollars.”

Jobson says the crash is a hard pill to swallow, especially for younger investors who have taken a big risk to gain exposure.

Interactive Investor research shows that cryptocurrency is the preferred investment for 45 percent of people between the ages of 18 and 29.

“An alarming number has funded this through credit cards and other forms of credit, leaving them with the double face of investment and debt losses, exacerbated by higher interest rates,” Interactive Investor said.

However, they have one hope – we’ve been here before.

“Crypto evangelists will point out that before then the market has fallen to record lows, but with interest rates rising and the economy slowing, we are in a different world today,” Jobson says.

Bitcoin has yet to prove that it offers the world a killer app that can’t be obtained anywhere else, and given that most investors don’t really understand how it works, its price movements are still largely driven by sentiment, both positive and negative.

Now it’s negative, says Fouad Razakzadeh, market analyst at City Index and Forex.com.

Confidence is shaken and people are not in the mood to take risks. So, even when we see periods of relative calm, they don’t last long.”

The game is not over yet. Bitcoin rebounded at the end of last week to reach $30,000, bringing the total market value of the sector to $1.31 trillion. On Monday, it was trading at $3,0279.13.

Some big players could benefit from the recent decline, says Martha Reyes, head of research at digital asset exchange Bequant.

“Bitcoin has weathered 70 percent to 80 percent corrections in the past. This could be an opportunity for organizations to build websites at better levels.”

Reyes says the decline of the stablecoin could unleash a much-needed regulatory framework, which could also tempt institutions.

Recent events seem to have cleared up one of the myths about Bitcoin – that it is now digital gold, a safe haven in crisis.

Instead, it has been closely correlated with the stock markets, increasing risk rather than adding protection.

Bitcoin is not alone in this, says Mr. Razakzadeh. “If you look at the gold and FX markets, there are no signs of serious safe haven demand. The likes of the Japanese yen and the Swiss franc have not shown any strength at all.”

Gold, silver and cryptocurrencies are struggling because they don’t pay any interest or dividends, making them weak inflation hedges.

All three are priced in US dollars, and the appreciation of the US currency has made them relatively more expensive for those buying in foreign currencies, making them less attractive.

It’s hard to see how cryptocurrencies can fall in light of today’s poor economic fundamentals, says Mr. Razakzadeh.

“It is true that we will see a bounce here and there, but as long as government bond yields are up and the dollar is bullish, the risks remain skewed to the downside.”

Confidence is shaken and people are not in the mood to take risks

Fouad Razakzadeh, Market Analyst at City Index and Forex.com

Now that tech stocks and cryptocurrencies are inextricably linked, both are finding themselves in a tough spot, says Walid Goodmany, chief market analyst at broker XTB.

“It requires restoring public morale before we see an improvement.”

Conventional investing advice is to keep your nerve in the middle of a meltdown and avoid crystallizing paper losses by selling in a panic.

This has worked well with stocks, as history shows that stock markets have a habit of recovering over time.

Bitcoin has also recovered from its previous setbacks, but that is the condition. It was in a completely different world than the world we find ourselves in today.

However, one thing has not changed: do not invest money that you cannot afford to lose.

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Updated: May 17, 2022, 5:28 am

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