Bitcoin has become an investment conundrum. The gains made by the leading cryptocurrency since its emergence in 2009 are undeniable. However, like all investments, things are never straightforward. Bitcoin has been through multiple periods of extreme volatility and uncertainty. Volatility is something that every investor should expect when they buy stocks, forex, or any other financial instrument. However, what’s less common with traditional assets is uncertainty. Although there’s always the risk of a company going bust or a currency losing significant amounts of value, there isn’t the same level of uncertainty as bitcoin.
Even though the technology is over a decade old, its utility in a real-world setting is still far from common. There is an expectation that bitcoin will become mainstream in the future but, right now, we’re not at that point. As such, the price of bitcoin can be more volatile than other financial investments. Of course, this idea isn’t confined to bitcoin. Anyone that wants to know how to invest in cryptocurrency needs to understand that all coins are volatile.
Cryptocurrency Will Always be Volatile
There are ways to try and mitigate risk when you open a trade. For example, you can have a budget i.e. you shouldn’t invest more than approximately 2% of your bankroll in a single trade. You can also use stop loss limits when you trade cryptocurrencies via contracts for difference (CFD). However, in terms of the crypto market as a whole, there will always be risks. We’ve seen that in 2022. The price of bitcoin has struggled to gain any sustained momentum due to tough economic conditions. Compared to bitcoin’s peak of more than $60,000 in November 2021, the price has dropped by more than 50% to around $30,000 as of mid-May.
The sharp drop in value has caused investors to reallocate their capital. From bitcoin and other cryptocurrencies, investors have been putting money into index funds such as S&P 500 as a way of gaining a bit more stability. However, even these investment options are struggling. From a high of 4,796 points in January 2022, the S&P 500 dropped to 3,930 points in mid-May. The main reasons for turbulence within all financial markets are inflation and US monetary policy. Although bitcoin has enjoyed some initial bursts of bullish activity thanks to investors hedging against rising inflation, the general trend has been to sell in favor of other investments.
Tough Market Conditions Have Hit Bitcoin Hardest
Thus, the current bear market is less about a general move away from bitcoin but tough market conditions as a whole. Put another way, all financial markets are suffering. However, because bitcoin and other cryptocurrencies are less established and are yet to have mainstream utility, they’re suffering more than most. This may suggest that the bear market won’t last forever. As economies recover and inflation slows, bitcoin may recover. When buying activity returns and the price of bitcoin increases, that could have a self-fulfilling prophecy effect i.e. more people start buying because other people are buying.
So, while crypto investors are having a tough time in 2022, it’s not necessarily a bad thing for the market. Bitcoin has risen and fallen numerous times since 2009 and it will probably continue that way for years to come. However, it has rebounded every time it’s fallen. That doesn’t mean it will again, but a precedent is there. Once economies start to recover, that could lead to another surge in value for bitcoin as we know that bull runs are possible. We also know that bitcoin’s value has been over $60,000 before. Therefore, there’s no reason it couldn’t go that way again, although volatility should be anticipated.