Bitcoin has become one of the greatest investment assets in the world. Plummeting values are nothing new in the crypto sphere - coins are incredibly volatile and have the tendency to spike and free fall. Bitcoin and other altcoin have taken a series of hard knocks over the last few weeks, from the SEC’s ruling on crypto exchanges to reports of a bear whale with the Mt.Gox case. The resulting lack of buying opportunities has left even the more seasoned investors with a sense of frustration. But just as we’ve come to expect sharp rises from this market, so too should we expect big falls; market fluctuations are part of the “inevitable” cycle for BTC.
Whenever bitcoin prices approach historical highs, every investor should consider the currency closely. Consider the end of 2016, when bitcoin approached $1,000 dollars. The first time bitcoin had broken the $1,000 dollar mark was back in late 2013, and as many experienced bitcoin traders will remember, prices suffered a dramatic collapse after peaking, then rebounded, then suffered a long-term collapse shortly after. In the year 2013, Bitcoin price first hit $1000 and then, it went down far below it. This trend continues till 2016 when the price was $250 and within few weeks, it went up to $1000.
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The same scenario that took place 2013 to 2016 is what we are witnessing currently. Bitcoin went as high as $19,000 in December, 2017 and currently, it is trading at $8,000. The reason for great increase in BTC price to $1000 in 2013 and $19,000 in 2017 was over excitement and urge to make quick money by new investors. To these investors, Bitcoin was new, it was hot, money was pouring into it. Bitcoin investors got excited. This caused a price surge. As prices started to surge, a lot of people jumped on the bandwagon, hoping to tap into rising prices. Then, savvy and cautious investors started to realize that the price surge wasn’t due to the fundamental value of bitcoin (at the time), but instead over exuberance. They started selling. As more people started selling, prices began to drop, then more people began to panic, creating a stampede that led to prices eventually collapsing. Those who didn’t get out early enough lost a lot of money. This was also worsened by the crackdown on exchangers in China and South Korea.
If prices are surging at unnatural rates, as an investor you need to keep a close watch on markets. As a “Safe Asset” Bitcoin Can Suffer from Fleeing Investors. Bitcoin and Cryptocurrency in general are global. So when it is affected in US or China or any other country that holds a major stake, the effect will be reflected in the price world over.
After Bitcoin price dropped from $19,000 mark, it became steady at about $10,000. Then Facebook came out with ban on cryptocurrency ads. This was followed by the US Internal Revenue Service(IRS) order. According to the Internal Revenue Service, anything purchased using a digital currency is liable to be taxed as a capital gain.
On Reddit, one contributor, under the heading “I just discovered that I owe the IRS $50k that I don’t have, because I traded in cryptos. Am I fucked?”, wrote they had ended up with a $50,000 tax liability on trades after they sold $120,000 worth of bitcoin to buy different coins. The current value of those coins is about $30,000. “I feel like I might have accidentally ruined my life because I didn’t know about the taxes,” the poster wrote.
Again, the US Securities and Exchange Commission similarly cracked down on crypto exchanges and ICOs this month, saying companies trading in digital assets need to follow federal laws. In addition to that, Google came out to announce plan to ban Bitcoin and other cryptocurrencies adverts on their platforms.
All these resulted in the drop in BTC price below $8000 as witnessed last week. Though the price has recovered and currently trading above $8,000, there are indications that it will further go down.
As an investor/trader, you should always be critical of whatever you’re investing in. Even if you’re very confident in what you’re investing in, whether that’s bitcoin or altcoin, you should take some time to examine your investments from a contrarian point of view. Why might bitcoin markets be distorted, and prices unnaturally high? Remember, markets will always correct themselves.
Bitcoin has been and still is one of the best investment vehicles in the world. Regardless, as an investment asset, it will suffer from prices drops, and will also enjoy price increases. The trick, as an investor/trader, is to buy low and sell high.
One might ask, why do the prices of other cryptocurrencies go down with bitcoin?
The fact is, Bitcoin is the biggest Cryptocurrency not only in terms of price but also, in terms of market capitalization and traded volume. Consequently, almost all other cryptocurrencies are traded in exchange for Bitcoin. So when there is lost of interest in Bitcoin, the same will be the case for other cryptos.
In conclusion, the best way to keep your Bitcoin investment afloat is through Trading. Now, whether the ''price channel'' of Bitcoin is going up or down, on a daily basis, the price will experience up and down "trend" along the way. And those are the ideal trading periods. Good trading involves selling and buying on a daily basis when price goes high and when it drops to an expected level respectively.
The two blue lines shows the price channel
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credit: DWI
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