By now I am sure you have seen Bitcoin and the crypto market overall.... well they plain just got slaughtered today. It was a brutal sharp drop however that is not to say it was completely out of left field. Pick an asset class, a section of the economy, really anything and odds are it is down this year and down pretty big at that. When you mix this with the economic uncertainty and a literal war in Europe's backyard you can see why this is taking place.
Why has this Occurred?!
When looking at Bitcoin in particular but really any cryptocurrencies it is important to remember that they correlate or will follow some sector or aspect of the economy. Last week on CNBC I forgot who it was that discussed this very topic and stated that when looking at the markets Bitcoin is closely following the Nasdaq. At the time that the guy was talking about it, the Nasdaq was down 21% for the year, and low and behold Bitcoin was also down 21% for the year.
Now, this was the middle of last week so since then there has been some change but the underlying principle remains the same. Bitcoin is currently mirroring technology stocks for better or worse. For years crypto supports have compared to digital gold but sadly the overall markets are not yet accepting it like that and instead are evaluating it as a technology stock.
Whether you agree with the label or not it is important to recognize it for what the market groups it with. With this understanding, you can then better anticipate Bitcoin's future moves and how it will react to different economic conditions. Probably the biggest thing is that technology/growth stocks and high-interest rates do not go together. Thus with rates currently climbing it makes sense that Bitcoin is being pulled back. Another negative thing that will weigh on Bitcoin is that tech stocks do not perform very well with economic uncertainty something we are currently experiencing in many areas of the economy.
We can also leverage this information to follow adoption and adaptation to cryptos. If we think of Bitcoin as something that is going to continue to grow and be adopted by more and more users and companies then we will be able to track when the market starts to value it as something besides a technology stock. As soon as it begins to buck trends with the Nasdaq and the technology sector as a whole I would see that as the flashing of signs that it is separating itself at which it could prime itself for a huge price increase.
For now though with it being grouped in as a technology stock one thing is for certain. It will be able to have days where it shoots up 5-10% but then turn around and crashes 5-10%. When looking at tech stocks like Zoom, Lucid Group, and AMD, volatility is something that is common with it. This is what Bitcoin is being compared to and today Zoom fell 4.19% (hitting a new 52-week low), Lucid fell 9.92%, and AMD fell 9.41%. Looking through this lens all of a sudden the price drop Bitcoin went through is not as crazy it really just followed the others.
Without more economic clarity it will probably be a rough couple of months for Bitcoin and the stock market overall. China is currently struggling to contain its COVID outbreak leading to more and more people being locked down which is going to once again cause supply chain shortages. If it lasts long enough it could end up looking like last year. The reason this is not going to be as beneficial to stocks again is that money is no longer cheap with rising interest rates. Last week the largest rate hike in 20 years happened with interest rates in the US raised 50 basis points or 0.50%.
What Can You Do
I know I can sound like a broken record but continuing to stack your sats is the way that I am going. I have been using my Fold card to purchase a variety of different gift cards today with the huge pullback! To prevent my funds from sitting idle I send my sats to my Hodlnaut account to continue to build my stack!
DeFi might be the best place to really go right now with any of your crypto assets to allow them to continue to grow. I have been leveraging DeFi for the last few months rather than holding some coins outright. This allows me to better ride out the highs and the lows and is something that I can set and walk away from during the week. It is important when doing this to choose a protocol that you trust. It might not produce the highest APY but I would rather take a lower-paying APY with peace of mind than a risky asset that could suffer from an attack or hack.
Please know I am not a financial advisor I am just someone who picked up on a trend and wanted to express it! Makes sure you always do your own research and never invest money you cannot afford to lose! If you enjoyed this article and would like to further support me below are a couple of referral links that if you used when signing up I would appreciate it! Also, follow me on Twitter @Cje95_
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