Crypto investors are bleeding hard. Bitcoin and cryptocurrencies continue to drop in tandem with the stock markets. From its all-time high of almost $70,000, bitcoin has devalued about 40% to $40,000. Meanwhile, the Ethereum price slipped 4% today and dogecoin’s price is down 6%.
Data from CryptoQuant shows that the percentage of the Bitcoin supply that’s currently in profit saw a plunge and declined to the same level in July 2021. This indicates that a large proportion of investors are in a losing position, which could lead to further sell-off as investors choose to stop loss. Moreover, $2.1 billion leverage-long crypto futures contracts were liquidated during the sell-off.
What Happened Then?
While bitcoin and cryptocurrency as a whole have been performing poorly lately, the latest price crash is mainly caused by two factors.
The first one would be the revived concern over a rate hike. Just last month, the last FOMC meeting detailed that 2022 will witness three rate hikes. However, given the surging inflation rate, it is reported that the Fed is considering the fourth rate hike in 2022. According to Goldman Sachs, the chance of a fourth or even five rate hike in 2022 is now 53%.
Analysts observed that Bitcoin is performing similar to tech stocks, instead of a safe-haven asset. Tech stocks usually get the hardest hit in rate hikes, as the money supply is low and the cost of borrowing money increases. According to Randy Frederick, managing director of trading and derivatives at Charles Schwab, the panic sell could continue well “till at least the next Fed meeting, which is around January 26.”
Another guess for the latest sell-off is Kazakhstan cutting off its internet supply to curb demonstrations. As the second-largest bitcoin mining hub accounting for almost 20% of bitcoin output power. It is estimated that the power cut led to a 12% drop in hash rate. While the drop of hash rate did not have a direct impact on the change of price, it could lead to concern over the security of the network and disruptions in the market and mining activities.
What Happens Now?
Crypto market analysts Laurent Kssis and Brent Donnelly had warned recently that bitcoin might be prone to a steeper sell-off, though there were some signs late last week that the market might be stabilizing. January tends to be a seasonally weak month for bitcoin, but this year has been especially harsh, with the largest cryptocurrency down 11% so far in 2022.
Data from Glassnode confirmed that the current long liquidation dominance echoes that in May 2021, when the price of bitcoin plunded to $30,000. In his tweet, Alex Krüger, founder of Aike Capital, warns that an inflation spike could lead to bitcoin falling towards $30,000.
In the near-term, the money policy of the Fed and economic data continue to determine the fate of bitcoin. With the global market in an extreme fear sentiment and the bears having the upper hands now, the bitcoin market will be highly volatile and lack the momentum to recover to $45,000. New lows could still be made in the near term.
How to Prepare for Market Swings?
It seems that the next weeks would be challenging and wild for bitcoin. In times of uncertainty, a good way to survive is to diversify our strategies and portfolios. It is important to figure out your risk tolerance and only invest money you can afford to lose. Here are two options worthy of considering.
Option 1: A Wallet Designed for Traders and HODLers
An interest wallet is a safe haven to store your bitcoin. With up to 21% annualized interest, you can grow your wealth without taking the risks of trading. You can withdraw your deposit anytime you want or transfer the bitcoin into the trading account instantly.
Option 2: Managing Trading with Lower Risk
Futures trading enables traders to earn profits regardless of which direction bitcoin goes. By predicting the right trends of Bitcoin’s price, traders can earn greater returns within a shorter period of time. What’s more, there is 100 times leverage used to maximize traders’ profits.
Assume we used 1 BTC to open a short contract when bitcoin was trading at $50,000. Please note that with 100x leverage, 1 BTC can open a contract worth 100 BTC.
When the price of bitcoin dropped to $48,000. The profit will be ($50,000 – $48,000) * 100 BTC/$48,000 *100% = 4.16 BTC. Bexplus offers 100x leverage in BTC, ETH, DOGE, ADA, and XRP futures contracts. No KYC is needed and it is available to traders from the U.S. If you are a beginner, the demo account is really useful for you to improve your skills trading in a real environment without worrying about losing money.
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