Why The Downward Spiral in the Price of Bitcoin and Other Cryptocurrencies Is A Good Thing
Downward trends in crypto often create FUD (fear, uncertainty, doubt) and send investors running to sell off their assets and move to safer ground
It’s been a bloodbath this week.
As I scroll through CoinMarketCap (CMC), it doesn’t look a lot like Christmas. But more like “The night the reindeer died “(Scrooged, anyone). Nearly every top market token and coin are in the red. So, I set out to discover why.
According to CMC, the entire crypto market is down 1.95% over yesterday. And there are several factors involved.
First, in an interview with the Wall Street Journal, Neg Segal, Twitter’s CFO, said, “Bitcoin is just a pipe dream, for now. “And he doesn’t plan to invest Twitter into any crypto assets. Instead, he says, “they’ll stay with stocks and bonds, which are less volatile. “
Second, President Biden signed into law the infrastructure bill containing a new crypto tax language. If you’ve read any of my previous work, then you knew the bill would hurt crypto when it landed. In short, any crypto transactions over $10,000 must be reported by “brokers. “Not an issue, right. Except that “broker “is defined vaguely. See below.
“[A]ny person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”
Clear as crystal, right.
Third, China warns residual crypto miners of dire consequences should anyone break the law and continue pursuing mining activity. Of course, China banned holding crypto and crypto mining a few months ago. But that hasn’t stopped everyone.
There is a lot of pressure on President XI to maintain the sense he’s in control of a country facing major issues right now. So, the threat isn’t a shock. But it can still rattle the market.
Last, Bitcoin is re-testing support lines. Technical analysts were expecting Bitcoin to re-test its major support lines. However, BTC’s strong bull run created a relaxed environment. And when you have that sense of safety, anything can disrupt the waters. But, in most cases, it’s okay and expected. And that’s the case here.
The only things adding to the FUD are the President’s bill, Twitter’s conflicting Bitcoin stance, and China’s warnings all in one week.
So, how is all of this news a good thing?
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The negative aspects to this week’s falling prices
Onboarding new blood.
If you’ve been investing in crypto, you know how to handle volatility. But if you’re new, this jumpy price action can scare you. It might even scare some seasoned investors. And although market sentiment is still bullish for the long term, not everyone is built for it.
Many investors’ survival instincts kick in, and it’s time to save the farm by selling risky assets and shifting to a stablecoin or fiat if you’re really desperate. After all, I’ve written an article recently about Crypto.com’s amazing interest-bearing coins. So, why not move over and earn interest while the market bleeds out?
The reason is if you’re a long-term investor like me, you know the red won’t last. This dip is a reaction. It’s a fear of short-term downtrends. Yes, the infrastructure bill will stay. But most people will forget about it in 1–2 weeks, especially if the news cycle moves away from it. And you know they will. They need new stories to keep ratings up. So, you, the seasoned and stalwart investor, can hold your ground, knowing your coins and tokens will recover.
Cryptocurrency is a product, and when products go on sale, you buy
The dip is what you were waiting for.
When you’re outside the markets looking in, it all seems like games of chance. And to an extent, it is. But when you’ve been on the inside long enough, you know the market rises and falls. So it’s all part of the process. And there’s money to be made during every kind of market cycle.
So, you know that now is the time to make some buys. If you’re a long-term investor doing DCA (dollar-cost averaging), then you don’t have to do anything. However, you could be adventurous and increase your contribution during the dip. Or make a lump sum purchase outside of your regular contribution schedule.
If you have enough of a cash surplus, you could make a direct purchase from a seller. A direct purchase will allow you to bypass market restrictions such as maximum transaction amounts. So, don’t forget that option if you want to make a big move. And you can keep the transaction private.
Every drop increases sales and begins a new bull run
What goes down must come up.
Too often, investors believe when an asset goes down, it’s going all the way to zero marking the apocalypse. And after 2008, it’s hard to blame them for being gun shy. But it’s not the norm. Sell pressure typically entices buyers, and after a short while, the market goes back up or shows lines of support like I mentioned in the beginning.
Lines of support are critical to show confidence in a particular crypto. For example, Bitcoin dropped below 60k recently. However, it could and probably will go lower. Some say lower than 50k. Yet, I disagree. I believe BTC will see support at 50k. The reason is institutions, and HODLers see the bullish long-term for BTC. So, they’ll be on standby when sell pressure comes. And they’ll scoop up as much Bitcoin as possible. Their buying will stabilize the price before it falls much further.
Then, when everyone sees the support line, it will create confidence again. And buy pressure will increase — thus creating a bull run. As I said, once you see the cycles from the inside of the market, you can start to play a different game than those who experience FOMO and FUD.
Conclusion
Yeah, it’s a tough week.
From the outside, it looks terrible. And it confirms the fears of doubters. So, they sell. And the price of crypto drops. And the drop causes more FUD.
Also, if enough investors sell, it could cause a free fall like in the 2008 stock market. Fortunately, not all investors carry the same point of view of the market. There are investors like you who see opportunity and not a catastrophe.
The dip is a time of joy for investors who play their cards right by preparing for times like this. You’ve saved your money for a good sale. So, when the market falls, you’re ready to shop. You may have even been waiting for the dip in anticipation. And your stance probably confused new investors.
But you’ve got the mindset to know that a downward spiral can be a good thing. And that’s because the spiral stops. The spiral stops because of you, the buyer.
The informed investor and the uninformed investor create a necessary symbiotic relationship. Their FOMO and FUD benefit your lack of the same. When they make the wrong move, you make the right one.
So, don’t let all the red get you down. It’s only temporary.
Stay strong.
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