As the face of crypto, it may be worrying to see Bitcoin significantly down since its November 2021 high. The asset's recent price movement has many investors concerned about a potential end for crypto or if a long bear market is taking over. Taking a step back and looking at the factors that affect BTC’s price, however, sheds light on larger trends that not only affect Bitcoin but the entire crypto market and other markets as well.
It’s important to note that other markets are heavily correlated with crypto. As such, movements in assets like Bitcoin often parallel movements in these markets. The connection is evident when looking at stock market performance, especially tech stocks that were hard hit earlier this year. Amid uncertainty about the Fed’s interest rate increase, tech stocks faced a notable sell off that was mirrored across numerous digital assets (especially Bitcoin), demonstrating the interconnected nature of these markets.
Though many cite the Fed’s interest rate hike as the main reason for tumbling stock and crypto prices, there’s more to unpack here, especially beyond the short term. Understanding these underlying trends can help investors refine their outlook and investment strategies related to Bitcoin.
Is Bitcoin Here to Stay or Just a Fad?
The cornerstone narrative in the cryptocurrency community is the provision of decentralized financial (DeFi) systems. In terms of this narrative, Bitcoin is the arguably the gold standard. It is a new financial system that can’t be controlled or manipulated by politics or human greed — a fair and transparent money for a divided world. It isn’t designed for buying coffee; it’s designed to be the next global reserve currency.
In technical terms, Bitcoin is the most decentralized cryptocurrency in the world, and the largest cryptocurrency by market capitalization. This is because it has more users contributing to its governance than any other blockchain. Moreover, it is the only leading cryptocurrency that has an anonymous creator, had pure organic growth and been tested multiple times, which has resulted in it being the most meritocratic cryptocurrency on the market.
Bitcoin's detractors believe that even though it is the largest decentralized currency, it just doesn't have enough functionality for it to stay on top forever. They believe that cryptos with more functionality like Ethereum will eventually replace BTC. This may be true and Ethereum has been able to grow significantly relative to Bitcoin but there are no guarantees.
In short, Bitcoin is extremely unique. The biggest differences between it and other cryptocurrencies goes beyond size. It is what it stands for in terms of shifting the power away from a few to as many people as possible. The narratives that inspire people to purchase it and share it with others are extremely important.
What Is Bitcoin?
Bitcoin is a Layer 1 blockchain, a type of project that represents the base network or underlying infrastructure in a blockchain-based financial system. Layer 1 blockchains can finalize and validate transactions without the help of another network. They also have their own native token, which is used to pay for transaction fees.
It is a form of digital currency and used by many as a speculative store of value. It is decentralized, meaning that no central authority controls it. Instead, Bitcoin is run by thousands of computers distributed around the world. Despite not being accepted as legal tender in most of the world, it's popular because it can’t be censored, has a finite supply of 21 million and allows transactions to be made by anyone, at any time and from anywhere.
Like most cryptocurrencies, Bitcoin is supported by a technology known as a blockchain — a decentralized, distributed ledger that records the provenance of a digital asset. The blockchain secures cryptocurrency transactions by creating incentives to make tampering unprofitable for malicious users. The implication is that ownership of crypto is held probabilistically through trustless enforcement, as opposed to certainty.
From an investment standpoint, the closest thing that Bitcoin can be compared to is digital gold. It can be considered as a speculative super commodity, with a value proposition based on it being a perfectly scarce, portable, immutable and divisible savings technology.
These factors mean that it can stay largely unaffected by factors that could affect its value such as inflation, seigniorage and failing monetary policy. Bitcoin does not rely on a central bank; instead, it is managed by programmed algorithms that are governed in a decentralized and democratic manner.
How Is Bitcoin Funded?
Bitcoin is technically not funded by anyone; instead, its network incentivizes Bitcoin miners by rewarding their efforts with coins. Bitcoin mining is the process in which the network verifies transactions. Miners use expensive hardware to compete for the next block on the Bitcoin network. The fastest miners solve computational math problems that verify transactions in the network.
Miners are critical to the Bitcoin network as they keep transactions moving along and earn newly minted Bitcoins. Bitcoin mining holds a high barrier to entry and uses large amounts of energy.
This process of mining Bitcoin is known as proof of work (PoW). Many cryptocurrencies are replacing the PoW concept with proof of stake (PoS), a more affordable and energy-efficient process of verifying transactions. While the PoS concept is likely to overtake PoW in popularity, Bitcoin will remain with PoW, at least for the time being.
The idea of Bitcoin came out of the turmoil of the 2008 recession as distrust of centralized financial institutions grew. A pseudonymous individual or group of people going by the name Satoshi Nakamoto issued a whitepaper describing Bitcoin, a new peer-to-peer digital currency that would address the centralized control of money and the required trust that citizens place in the hands of centralized authorities.
The purpose of Bitcoin was to bypass the middleman in financial transactions, reducing costs, improving efficiency and increasing financial accessibility.
On January 3, 2009, the Bitcoin blockchain was launched when the first block, widely referred to as the genesis block, was mined. For the first few months, it had no real monetary value. However, about a year later, the first economic transaction took place when a man from Florida negotiated to have two Papa John’s pizzas, valued at $25, delivered for 10,000 Bitcoin on May 22, 2010. This act established the first initial real-world price of Bitcoin (BTC) at 4 Bitcoins per cent.
Fast forward today, and that amount of Bitcoin is valued at nearly $250 million. This iconic day is referred to as Bitcoin Pizza Day (May 22) by cryptocurrency fans all over the world. Since first becoming available on exchanges in 2010, BTC is now listed on over 600 exchanges worldwide.
Bitcoin Price History
Cryptocurrencies are among the most volatile assets you can invest in. This being said, when compared to other cryptocurrencies, Bitcoin is much less volatile than almost any other crypto. On average, Bitcoin has appreciated about 200% year-over-year since its inception, making it among the best investments you could have made in the last decade. Every time it crashes, its detractors claim that Bitcoin won't go back up. And yet, after every crash, it has eventually reached its all-time highs again and surpassed them.
At the end of 2020, Bitcoin entered another bull market, alongside the rest of the cryptocurrency industry. With institutional investors like Tesla, PayPal and Microstrategy adding the asset to their balance sheet, the digital asset has gained more legitimacy. Other major companies like Robinhood, Webull, and Cashapp have given it further legitimacy by offering Bitcoin trading on their platforms.
After Tesla CEO Elon Musk announced that Tesla will suspend accepting Bitcoin as payment, the price of the asset plummeted. Just days later, China announced strict regulations against digital assets, creating even more sell pressure. On May 19 2021, Bitcoin’s price dipped below $30,000 for the 1st time in 4 months, presenting a great buy opportunity for investors looking to buy it.
Its price has been suffering recently and even dropped below $20,000 for a little while in June. It has since recovered a bit but has been recently suffering again due to the current geopolitical crises. Every time Bitcoin crashes, everyone asks the same question: will bitcoin go back up? So far, the answer has always been yes. There is no way to know for sure if it will happen again, however.
What Determines the Price of Bitcoin?
The price of Bitcoin is determined by a simple variable — demand. The supply of Bitcoin is also constantly changing but it’s increasing at a constant and entirely predictable rate unlike almost any other asset. This is unlike the USD which can be printed at will by the U.S. Federal Government. Crypto assets move in the same manner that stocks move; more buyers than sellers pushes prices higher and vice versa. This demand is often affected by laws and regulation from governments. For example, when China announced a ban on Bitcoin, the price dipped. On the other hand, when countries announce formal adoption of Bitcoin, the price tends to swing upward. Price can also be impacted by influential people, companies and economic developments. The many factors that go into pricing Bitcoin cause its volatility.
Is Bitcoin Worth Investing In?
It could be worth investing in because historically it seems like Bitcoin will always go back up after every correction. With the price closer to 0 than its all-time highs, many see it as a good buying opportunity. Recent geopolitical risks paired with potential Fed rate hikes have caused fear in the market. This sentiment can be seen in the Bitcoin fear-and-greed index. When the market sentiment is almost entirely fearful, that can mean that it is a good buying opportunity. When it is especially greedy, there may be a dip coming soon. This isn't perfect because sentiment would also be extremely fearful right before a crypto falls apart, like LUNA or UST in the recent collapse of the Terra ecosystem.
The fear-and-greed index operates on a 0 to 100 scale where over 50 means the market is considered to be greedy and under 50 the market is deemed to be fearful. A fearful market typically is oversold and a greedy marketplace overbought. The fear-and-greed index dipped all the way down to 9 (extreme fear) but has since returned to 31 (fear), as seen in Alternative’s index shown below.
If you are interested in purchasing Bitcoin, a great method to try is dollar cost averaging. This strategy uses a predetermined amount of purchases of Bitcoin on a certain day. Transactions can take place weekly, bi-weekly, monthly or whatever suits your financial situation. Plenty of crypto trading platforms exist to facilitate this action. Some great places to buy Bitcoin are eToro and WeBull.
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Why Is Bitcoin Useful?
Bitcoin is useful because it is a fair and transparent form of money that cannot be controlled by one person or group. Bitcoin is peer-to-peer, which means it doesn't rely on often faulty 3rd party financial institutions like banks. The finite amount of Bitcoin — no more than 21 million Bitcoin in existence — can make it an inflationary hedge against overprinted fiat currencies.
With more dollars in circulation to be spent, precious assets such as gold, commodities and Bitcoin tend to rise in price because devaluation of the dollar means increased valuation of all products the dollar is used to buy. Bitcoin’s peer-to-peer network, decentralized ownership and finite supply could become a safer form of currency.
How To Use Bitcoin
When you buy Bitcoin on a cryptocurrency exchange, you’ll be able to send or receive it with your Bitcoin address. This address is similar to an email address, but it’s a unique string of numbers and letters that identifies your wallet. When sending Bitcoin, make absolutely sure you entered the correct address. If you send Bitcoin to the wrong address it will almost certainly be lost forever.
The most common use case for Bitcoin is as a store of value investment. Most holders use it to preserve their wealth, but there are other ways to use the asset.
Investors who want to use their Bitcoin to earn interest, secure loans or provide liquidity on decentralized exchanges (DEXs) 'wrap' their Bitcoin on Ethereum’s network. Since Ethereum’s blockchain supports smart contracts, it opens up limitless possibilities for using BTC. Wrapped Bitcoin (WBTC) is a synthetic Bitcoin on Ethereum’s blockchain, and each WBTC is backed by 1 BTCof reserves.
How to Make Money With Bitcoin
Aside from buying BTC at one price and selling at a higher price, you can make money with BTC through interest-earning platforms such as Coinbase.
However, it is important to note that you cannot earn BTC from staking because Bitcoin doesn’t use a proof-of-stake (PoS) consensus mechanism like Layer 1 blockchains such as Ethereum or Cardano.
Pros and Cons of Bitcoin
Despite Bitcoin’s sterling reputation in the cryptocurrency space, Bitcoin too shares its mix of strengths and weaknesses compared to other cryptocurrencies.
- Most decentralized cryptocurrency
- Strong reputation, concrete aim and global recognition
- Higher level of trust and stability than many other cryptocurrencies
- Proof-of-work (PoW) mining process not eco-friendly
- Serious scalability issues
As a Layer 1 blockchain, Bitcoin’s biggest competitors are other Layer 1 blockchains such as Ethereum. All competitors aim to solve the blockchain trilemma (scalability, security and decentralization) more effectively than Bitcoin. Nonetheless, while Bitcoin is the most decentralized blockchain, Bitcoin is easily surpassed by competitors in terms of functionality and scalability.
Bitcoin’s biggest competitor is Ethereum, the second biggest cryptocurrency by market capitalization. You can think of Ethereum as a public shared global computer network. It doesn’t run on a single device but instead runs simultaneously on thousands of devices around the world. People around the globe contribute their computer’s computing power to the network and are paid for doing so.
Unlike Bitcoin, the Ethereum blockchain enables developers to create and launch decentralized applications (dApps) and is faster than Bitcoin. This goal is achieved by using smart contracts, allowing users to interact and develop dApps that cannot be censored or shut down. For this reason, Ethereum is commonly referred to as a decentralized computing platform or a decentralized internet. Ethereum has a decent chance of flipping Bitcoin in terms of market cap if it can prove itself significantly more useful because of its general purpose nature.
In addition to Ethereum, other competitors include Solana, Cardano and Polkadot, all of which aim to differentiate from other Layer 1s by addressing the blockchain dilemma in a more effective manner.
Is Bitcoin Here to Stay?
Bottom line, Bitcoin is the longest-standing cryptocurrency, with an untouchable value proposition and fundamentals that suggest that it is the most meritocratic cryptocurrency in the world. Moreover, Bitcoin has a unique network effect from being the first cryptocurrency created of its kind, making it less susceptible to being easily replaced and the first point of contact newbies have with the cryptocurrency industry.
To reiterate, all other cryptocurrencies are called altcoins, and for good reason. Bitcoin is truly one of a kind, and is the epitome of what the cryptocurrency movement stands for.
Bitcoin Price Prediction
Bitcoin’s price is reliant the current macroeconomic situation. Once the interest rate hikes are out of the way, the war in Ukraine has ended (or at least slowed) and if cryptocurrencies can continue to gain mainstream adoption, it’s not unlikely for Bitcoin to surpass the $100,000 mark. If $69,000 was the peak, however, we may be in for a long ride down. After bull markets, Bitcoin and other cryptocurrencies have been known to depreciate over 80% before reaching new highs years later. If this is the case, there may be good buying opportunities in the coming year.
Over the long-term, many believe that Bitcoin has the potential to over take gold as the most adopted store of value asset. Since gold has a market capitalization of over $10 trillion, Bitcoin would need to appreciate more than 10 times its current price. This would make Bitcoin worth over $500,000 each –– while this may be a lofty goal in 2022, it’s certainly a possibility over the long-term.
Can Bitcoin Drop Lower Than $20,000?
Bitcoin has already fallen below $20,000 in June and even dipped below $18,000. Bitcoin has since remained above $20,000 and seems to be relatively stable. $30,000 was the previous support and didn’t hold forever, however. The last time it dropped below the $30,000 mark was July 2021 following news of China’s crackdowns on crypto mining and trading. This dramatic drop in price was best explained given China’s influential standing in the crypto mining industry, and the current price action of BTC can be explained by similar events.
When considering if Bitcoin will dip beneath this price again, it’s important to look at the factors working against its growth. Some of the biggest short-term pressures include looming interest rate hikes, the war in Ukraine, regulatory pressures from foreign governments and market policies from the Fed in the U.S., all of which could drag the price of BTC down.
Switching to a long-term view reveals another factor that could work against Bitcoin: halving events. A halving event is when the reward for validating transactions through mining is cut in half. This procedure in turn increases the value of the BTC yet to be mined and further contributes to the value of the coin.
Halving events are important as the price movements of Bitcoin are cyclically related to when these events take place. For example, the last halving event took place in 2020 after which investors expected an 18 to 24 month bull market. Price hikes did take place, with BTC reaching an all-time high in that time period, but as an 18- to 24-month window comes to a close, some investors expect a sustained bear market to follow. Apart from the more immediate events mentioned above, halving events could explain the longer-term price action of Bitcoin.
Bitcoin Trading Signals
IntoTheBlock provides a great suite of fundamental and technical trading signals to help you make your own informed decision on whether Bitcoin will go back up.
Why Is Bitcoin Going Down?
One of the biggest reasons the price of Bitcoin, other cryptos and other markets are going down is the dreaded Fed interest rate hike. Everyone knows it will have to happen eventually because inflation is higher than it has been in decades. Investors are nervous that the Fed’s decision to increase interest rates will lower asset prices and prompt a sell off of inflation-hedging assets like BTC. Though an increase in interest rates may be worrisome, it’s beneficial to look at this from a historical perspective.
Though interest rates are set to increase more soon, individuals should take note that these increases are inevitable and their effects will eventually go away. Why is Bitcoin reacting with so much volatility then? Well, one reason to explain this is the outperformance of crypto and tech stocks before the recent crash. In a slowly transitioning post-pandemic era that is normalizing the markets, big tech stocks and crypto are seeing a leveling off from their surges, potentially causing fear among investors. In the long term, however, this leveling off can be considered a temporary adjustment in these markets.
Another factor influencing the downward price movement of Bitcoin is Russia’s central bank taking a stern stance on crypto. Similar to the events surrounding China in 2021, Russia’s central bank proposed a ban on crypto trading and mining and described crypto as a pyramid scheme that seeks to undermine the sovereignty of monetary policy.
Harsh, right? Nonetheless, the importance of this statement stems from Russia’s standing as the third largest country to contribute to Bitcoin mining, behind Kazakhstan and the United States. Though no changes have been set in stone, the views expressed by Russia’s central bank could be a contributing factor to Bitcoin’s downward price.
Is Bitcoin a Bubble?
Approximately every 4 years, the block reward for Bitcoin mining is cut in half. This event, known as “the halvening,” creates a somewhat predictable supply crisis leading to the formation of a new market cycle – or “bubble”.
While some believe in a 4-year market cycle pattern, data scientist Benjamin Cowen suggests an alternative theory: lengthening cycles with diminishing returns. This theory is based on Bitcoin’s ability to extend, and stay extended, beyond the fair value for years at a time.
The bitcoin bull run in 2014 featured a double bubble. An initial price hike, followed by a severe correction and a subsequent accumulation phase all leading up to a 2nd blow-off top down the road. Each consecutive market cycle saw diminishing volatility and took longer to reach the 2nd peak when measured from the bottom.
According to this model, the current market cycle is only halfway over with the best yet to come later in 2022.
How High Will Bitcoin go?
While no one knows for sure, why not do some dubious speculation for entertainment purposes.
According to the Cowen model, the answer depends heavily on timing. As time passes, a monotonically increasing fair value (calculated by taking the natural log of the price to fair value ratio) allows for a potentially higher peak. Here is the source for Cowen’s model.
If the peak occurs 2022, the price could go as high as $100,000. The later it occurs, the higher it has the potential to be. Bitcoin’s current price is a long way away from its all-time high of $69k in November of 2021. However, many experts are still bullish on seeing a pretty steady price increase in the near future.
How to Short Bitcoin
Investors should know that trading derivatives is a very risky proposition, but when it comes to shorting Bitcoin, the process itself isn’t too difficult. Take a look at the following steps to learn how to start shorting Bitcoin.
- Open an online account.
First, open an account with a reputable exchange with access to derivatives trading. Two excellent exchanges to choose from are Bybit and FTX as each offers state-of-the-art security and curated tools for traders looking to short BTC. Both Bybit and FTX are world-class exchanges and are great places to start shorting Bitcoin; however, neither of these exchanges are available to U.S. citizens.
- Fund your account.
After setting up your account, the next step is to fund it. You can use a couple ways of doing this that include direct bank transfers and transferring Bitcoin from another exchange or wallet. After finding the funding method that best suits your needs, you are ready to move on to the next step.
- Choose your leverage.
Now it’s time to choose your leverage. Leverage describes the ratio of your collateral to your borrowed funds, and it can be thought of as a multiplier on your investment. FTX hosts a number of leveraged tokens to choose from.
When deciding leverage, it’s good to weigh the risks involved. Higher leverage increases your potential upside but also multiplies your losses if your bet doesn’t pan out the way you intended. After deciding on a level of risk that best aligns with your investing goals, you are ready to enter into a short position.
- Enter your short position.
All that’s left to do is enter your short position. Since you’re betting that the price will go down, you will have to set up your stop-loss order and target price accordingly. You also need to determine the amount of collateral (usually in Bitcoin or USD) that you are willing to put up.
With your short position entered, you’re all set up to accept the transaction. Go ahead and click the sell button. Congrats on successfully shorting Bitcoin!
Can BTC Still Hit $68,000 in 2022?
A level of $68,000 was Bitcoin’s all-time high in 2021 and is a good comparative price when considering Bitcoin’s potential for the coming year. Before answering this question, let’s take a brief look at how Bitcoin has performed against other important indices.
It outperformed the S&P 500, gold and the Nasdaq over the past year with an ROI of 20.30%. In fact, if an investor had bought it two years ago and held it today, they would still have outperformed the S&P 500 over the entire last decade. This wider perspective helps put any shorter-term price movements of the asset into picture, but what about the coming year?
One factor working for Bitcoin’s growth is inflation. If the Fed’s planned interest rate hikes don’t manage to keep inflation below its 2% target, which seems impossible now, more people are likely to pick up Bitcoin as a hedge against rising inflation. The idea behind this is that by putting money into assets that are almost certain to rise in value at a rate greater than inflation, investors are able to effectively hedge against any losses that inflation may bring.
Other factors that could help Bitcoin rally include continued increases in non-zero crypto wallets, which describes the number of new wallets that have a balance of Bitcoin greater than zero. Additionally, if more companies adopt it as part of their treasuries or payment systems this can further its adoption as a store of value and can give the coin the hallmarks of a proper currency. Even if this does happen, Bitcoin may go back up but will still likely struggle to reach its all-time high again before the end of 2022.
Will Bitcoin Keep Crashing?
If fears of the Fed’s interest rate hike and governmental controls from foreign countries are powerful enough, then investors could expect continued downward price movements for Bitcoin. This potential trend is dismissive, however, of many other factors at play including elements at the macro scale that hold significant roles in Bitcoin’s price action. It is important for investors to weigh short-term events with long-term outlooks when making the decision to invest in Bitcoin.
Will BTC Go Back Up in 2022?
Nearly every single Bitcoin price prediction for 2022 has been a disaster. Many in the crypto space believed the price per coin would reach new all-time highs of $100,000 per coin by the end of 2021. Instead, the coin dipped below $18,000. While still possible for it to reach this level, experts agree that continued volatility can be expected. In the long term, crypto enthusiasts believe that it will go up in value as adoption increases.
A common comparison is between Bitcoin and gold. Gold holds a market cap of roughly $12 trillion dollars. Bitcoin holds a market cap of under $1 trillion. If Bitcoin is able to provide a store of value similar to gold, the price per coin and its market cap could increase to more closely mirror that of gold. While this is a tall task, BTC is much easier to access and spend than physical gold.
As the market continues to mature, price volatility is to be expected. Those looking to be a part of this crypto transformation need to have strong stomachs and hold on tight.
Will Bitcoin Scale?
In 2017, Bitcoin forked splitting into its 2 cryptos: its current state and Bitcoin Cash. A blockchain fork occurs when there’s disagreement about upgrades to the network. Bitcoin Cash aims to scale better by increasing the amount of transactions that can be inputted into one block on the blockchain.
However, the ideology that BTC should be used as a payment-based currency is dated. There are many other cryptocurrencies that are much more efficient, making them much more viable as payment solutions.
Instead, it is seen as a store of value. Since there is a finite supply of the asset, investors have security of scarcity. So long as more retail and institutional investors adopt it, the price of the asset will continue to increase. Thinking of Bitcoin as digital gold is a much more accurate depiction than thinking of it as a peer-to-peer payment system.
Is Now a Good Time to Buy Bitcoin?
Though people may tell you to buy the dip, is it actually a good time to invest in Bitcoin? It really depends on how you view the asset and where you believe it’s headed.
If you believe in the long-term applications of Bitcoin and consider its track record since its inception, then buying and holding it would be appropriate. A good way to minimize the risk you take on is to dollar cost average into it whereby you invest a set amount of money on a recurring schedule to reduce the impact of volatility on your overall investment.
Regardless of whether you are buying, selling or holding BTC, it’s critical to look beyond the short-term price action and think in terms of years. As cryptocurrencies become more widespread, traders are looking at the potential for Bitcoin to explode further in use cases and popularity while being wary of Bitcoin’s volatility and susceptibility to external events.
Frequently Asked Questions
Questions & Answers
Bitcoin is just as likely to go up as it is to go down. Based on its patterns in the past, it’s likely to go back up from its current support, however, it could dip even lower than its current price.
In the opinion of many top crypto experts, investing in Bitcoin during any significant dip is a good idea. There is no guarantee that this will be profitable, however, so be sure to do your own research before investing in Bitcoin or any other cryptocurrency. If the bull market continues through 2021, a six-figure Bitcoin is not out of the question.
Bitcoin and Ethereum aren’t meant to be competitors, and each asset is an equally viable investment. While Ethereum’s technology is undoubtedly more advanced than Bitcoin’s, Bitcoin has more mainstream adoption. For any cryptocurrency, adoption is a critical factor in determining the price of the asset. If you value underlying technology more than adoption, then Ethereum may be a better investment for you.
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