Bitcoin rollercoaster sees massive highs & lows – Is the crypto bubble set to burst?
Few markets exemplify just how volatile financial trading can be like cryptocurrencies. Bitcoin hit an all-time high of $42,000 on January 8 only to collapse by nearly 21% on January 11 to $35,555. The major sell-off has set alarm bells ringing throughout the markets. Is the cryptocurrency bubble set to burst? In this article, we focus on crypto and what recent events mean for investors.
All-time high, overnight collapse
Bitcoin’s drop from more than $40,000 to below $33,000 wiped about $170 billion from the total cryptocurrency market’s value in mere days. This huge drop is the crypto market’s biggest decline since its best run began in October 2020.
Reason for the drop? The mass bitcoin sell-off comes after months of gains for the entire crypto market. It’s important to remember that the value of Bitcoin has gone from about $4,000 to $45,000 in the past year.
Regulators warn investors
Analysts believe a Bitcoin rally is forthcoming. The current bullish sentiment has been predicted and likewise, the sell-off, albeit a major one, is a normal part of an overbought market. The asset has matured with the entry of institutional investors such as banks and since 2020, is increasingly seen as a legitimate hedge against the US dollar weakness and high inflation risk.
Despite the influx of reputable institutions buying up millions of crypto coins, the market is flagging the attention of global financial regulators. The Financial Conduct Authority, the UK’s financial watchdog, is concerned by price volatility and lack of consumer protection. The FCA warned investors that they should be prepared to lose everything.
Growth and reputability
For those seeing this as a major warning sign, it’s important to note that Bitcoin has more than quadrupled in the past year. After a 10-year cycle, not only has the market grown with the addition of rival cryptocurrencies (e.g. Ethereum), its value has skyrocketed; the value of Bitcoin has gone from about $4,000 to $45,000 in the past year.
What’s more, a growing number of previously risk-averse financial institutions are now pouring millions into the market; from Goldman Sachs to Fidelity and a long list of banks, are investing.
What does the future hold?
Many scoffed at cryptocurrency when it was first implemented 10 years ago. Since then, however, the market has grown exponentially. Blockchain, the underlying technology behind cryptocurrencies, has influenced the digital currency industry with many countries and institutions set to implement digital currency as a preferred method of financial transactions. With its growth, however, governments and regulators will have to figure out how to regulate and ultimately reign-in the “Wild West” of trading.
Here are 3 top tips for Bitcoin trading:
Follow the trends, beware of the hype
It’s easy to get wrapped up in alarmist news, especially if it’s pushed via social media. However, following hype may lead to false signals. Given the nature of financial events, it pays to follow the news. News bulletins from reputable sources can have major implications for crypto rates. As a trader, you’ll have to consider the news, but follow the trends. Consider the veracity of the information you’re receiving and compare this to historical trends in performance.
Cheaper spreads, easier wins
Many Bitcoin traders usually open at least a few trades a day to snap up profits during the market’s volatile movements. Since each trade incurs a fee, this can eat away at your profit potential. A good way to bypass this is to find the lowest fee structure possible.
The most favourable spreads will be on Bitcoin as it’s the most actively traded of the many cryptos available. Bitcoin also enjoys huge daily trading volume, this in turns makes transactions cheaper and faster.
Higher leverage, higher profit potential
Leverage is often the double-edge sword of trading, leading to the success and downfall of many traders. The additional buying power that leverage provides ensures that even the smallest price movement can translate into significant profit or major loss.
The higher the leverage, the more exposed you will be, yet you can always scale back the amount of leverage you’re implementing on trades at any time.
Get in or get left behind – start trading crypto today!
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