Crypto investors around the world are freaking out as Bitcoin, along with other cryptocurrencies like Ethereum, is taking a big hit. Since peaking its all-time high at $69,000 in November 2021, Bitcoin prices have dipped almost 50%. As of writing this article, Bitcoin is at about $36,000, while Ethereum is at $2300.
But why is bitcoin going down?
It’s hard to pinpoint a single event or factor responsible for the price dip. But if we look at the past couple of months, there has been a series of events that seem to have influenced the downtrend.
Minutes from Fed’s December Meeting
The first most likely factor why bitcoin is going down in prices could be the actions taken in the Fed’s December meeting. To keep things simple, it seems that the Federal Reserve is dialing back on its monetary policy support while reducing the number of bonds they hold. And to make things more complicated, interest rates are expected to rise too.
Soon after the news broke, the stock market saw a price dip on riskier assets like Nasdaq. But the stock market wasn’t the only one that felt the impact, as cryptocurrency prices, especially Bitcoin, also started falling shortly after.
Kazakhstan’s Internet Shutdown
Around the first week of January, Kazakhstan shut down its internet connectivity for more than 100 hours due to the political turmoil and protests against sudden energy prices rise. This directly affected crypto miners in Kazakhstan, which is the second biggest crypto mining home after the US.
After China banned crypto and crypto mining, many, if not most, miners moved to Kazakhstan, partly because it’s close and partly because of cheap and abundant energy resources.
The internet shutdown in Kazakhstan affected crypto miners, which in turn caused Bitcoin prices to further go down.
Russia Proposing Crypto Ban
After China’s crypto ban, Russia is probably the most likely contender to ban crypto. Last Thursday, Russia’s Central Bank proposed a ban on crypto use and mining, claiming that it’s a threat to their economy, environment and monetary policy sovereignty. This is not the first time Russia has tried to ban cryptocurrency. They have already prohibited making payments with crypto and Bitcoin.
Even though it’s just a proposal and not an actual law yet, it’s enough to create FUD (fear, uncertainty and doubt) in the crypto market. It’s possibly one of the biggest driving forces behind the recent price dip.
Feds Proposing Digital US Dollar
In a report by the Federal Reserve last week, they proposed the idea of digital US dollars or Central Bank Digital Currency (CBDC). It shouldn’t come off as a surprise because the Feds have been toying with the idea of digital currency for quite some time now. But in this report, they actually explore the potential costs, challenges and benefits of implementing a US digital currency.
The Feds have refrained from making any final decisions on it yet. Instead, they asked for opinions and suggestions from the public and stakeholders until May 20.
Though it probably had the least impact on why Bitcoin is going down, it’s still worth mentioning.
How to Deal with Bitcoin Price Dips?
We all know that cryptocurrency prices are highly volatile and are considered among the riskier assets. However, it’s hard not to lose your mind and be paranoid in this climate of uncertainty and fear.
Experts still believe that Bitcoin will inevitably reach $100,000. So, if you’re HODLing crypto (a buy-and-hold strategy), you don’t have to stress about these price swings.
The key to dealing with these massive crypto price dips is PERSPECTIVE. Here are a few things you can do to remind yourself of the bigger picture –
- See Bitcoin’s performance over the years. Ups and downs are common, but overall, Bitcoin prices have been on an upward trajectory since the beginning.
- Try to avoid checking Bitcoin prices and portfolios in times of volatility.
- Only invest what you’re willing to lose.
- Go back to the basics. Understand why prices are falling. Analyze the market. Analyze the fundamentals.
Ultimately, get comfortable with the price volatility of Bitcoin and cryptocurrencies. It’s part of the game. And think long term.