The cryptocurrency market is continuing its new year slump. On Monday morning, the price of bitcoin, the largest cryptocurrency by market value, briefly sank below $40,000 for the first time since September, dropping to $39,771. At the time of this writing, the largest crypto is currently trading at around $41,530.
Ether, the second-largest, also fell, going below $3,000 to $2,979. It’s currently trading at around $3,037.
What leads to the downtrend?
After Federal Reserve’s December meeting on Wednesday, indicating that it would start to reduce its balance sheet, dial back its monetary policy support and potentially raise interest rates, riskier assets like cryptocurrency took a hit and have lost around $300 billion.
However, if we look broader, the pullback surrounding crypto market is simply a risk-free point of view for investors. There is a ton of uncertainty out there right now. Besides the Fed’s actions, we also have the growing spread of the omicron variant of the coronavirus, soaring inflation, and a very tight labor market that could scare investors towards safer assets. In this scenario, the riskiest assets in investor portfolios, most likely cryptocurrencies, were the first to disappear.
Is this a signal to sell?
Similar to investing in stocks, which is also fluctuated, the drop in price is not a signal to sell. Want to buy low and sell high in investment, especially for a long-term one, you shouldn’t make decisions based on what others are doing. Being able to survive through the up and down trend of market is the key point to earning strong returns.
Cryptos are a nascent and extremely volatile asset. Before you venture into the sector, you should accept this fact. Over the past five years, Bitcoin has undergone numerous corrections, and now it is the most developed and valuable cryptocurrency. Ethereum is no different, with three withdrawals of 50% or more at the same time. Even the most volatile stocks usually don’t see their prices change that much.
What should we do?
Stay calm and hold on! Try to focus on the long-term investment.
Cryptocurrencies still have great potentials. Along the way, there will undoubtedly be times, like now, when they fall out of favor. And out there, anti-crypto investors will keep smashing on the market with their opposing points of view. But no disruptive technology is gaining adoption and general straight-line attraction. Smart money knows how to lure talent, and talent is resettling more and more to crypto.
* DISCLAIMER: The point of view in this article is just personal opinion, not financial advice!
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