If you haven’t heard that Bitcoin’s price has experienced a (rather steep) decline since last Tuesday, you’ve either just come back from a 10-day internet detox, or you’re just not that clued into what’s happening in the crypto-investment sphere. But it looks like its price is already on the path to recovery.
On May 11th, one Bitcoin was worth an impressive $56,485; yet at its lowest point on May 19, the value dropped down to $39,926 (using the latest figures from CoinDesk, a site that specializes in digital currencies).
That’s a decrease of almost 30% in just over a week, with the price reaching its lowest point since February after the greatest decline.
BTC has shown some recovery; its current price hovers around $42,065 as of May 20. Is this a dead-cat bounce (brief recovery in the price of a declining stock)? Only time will tell.
The fluctuations raise plenty of questions. What exactly happened to make Bitcoin’s future flash before its eyes initially? Is the value likely to rise or fall in the days to come? And what should we be expecting or doing as investors? As you can probably tell, this is a dynamic, fast-changing situation, but here’s my best take on what’s going on.
It’s a market correction
The decline we’ve seen in Bitcoin’s value may represent a massive market correction. This drop follows a serious surge — the price of BTC rose from $18,980.98 at the beginning of December 2020 to $54,181.91 by February 2021.
It then reached an all-time high of more than $64,000 in April; it’s possible that Bitcoin may have become overvalued in this period.
But is the price likely to keep falling or have we simply seen a temporary dip with a steady recovery to follow?
Although Bitcoin’s value has always experienced a series of dips, this one seems a little different so far. Whereas investors previously viewed decreases in Bitcoin’s value as an opportunity to buy in and profit, they now appear to expect further declines.
BTC has continued to break new, lower support levels during its recent freefall — some analysts predict that we can expect a new support level (a level that an asset does not fall below for some time) of around $35,000 over the next few days. Yet, just weeks ago, the support level was as high as $47,000.
Market corrections come when an asset gets overvalued, and they’re generally triggered by a major event that changes market sentiment. They can be short-term or very long-running — unfortunately, there’s no way of knowing which way things will swing in the heat of the moment.
In the case of Bitcoin, the relevant trigger appears to be increased interest in other cryptocurrencies among investors. Bitcoin has always been the dominant player in the crypto world and viewed as the most viable cryptocurrency, but the tide is gradually beginning to turn.
As interest in these alternative currencies has increased, doubts about the viability of Bitcoin have intensified. In turn, the market has reacted by devaluing Bitcoin.
But why the sudden change, you might ask? Two words: Elon Musk.
The Musk factor
Musk appears to be a major culprit in pumping up market sentiment in favor of Bitcoin and then letting it deflate shortly after. The billionaire had a considerable role to play in the initial spike in the cryptocurrency’s value thanks to his initial enthusiasm for Bitcoin and Tesla’s announcement that it would accept the cryptocurrency.
Then the firm and its CEO made a sudden U-turn, with Tesla making a major sell-off of its Bitcoin reserves and reversing its announcement to accept Bitcoin payments. Musk also made a series of negative tweets about the currency. Naturally, this caused panic and huge damage.
Some believe Musk may have done all this in a bid to line his own pockets, and many Bitcoin believers have criticized his moves as being reckless and ignorant.
However, others praise his dedication to true decentralization and a brighter, cleaner future — academics and crypto enthusiasts have long been aware of the very real moral problems associated with Bitcoin.
Musk has highlighted some of them, such as Bitcoin’s reliance on excessive amounts of dirty energy for its mining operations, causing significant potential damage to the environment. Cryptocurrencies that rely on different processes to decentralize their operations may stand a better chance of overcoming these issues — although whether Dogecoin poses a real alternative remains unclear.
Regardless of where you stand on these ethical dilemmas, you probably have a bigger question in your mind right now: Is this the end of the road for Bitcoin or should we feel reassured by its sudden recovery?
What the future holds for Bitcoin
If you’re an investor, you’re no doubt wondering what can we expect Bitcoin’s price to do over the next few days, weeks, and months. Is now a good time to invest before a potential bounceback, and how can profits be made from these swings?
Ultimately, your decision should come down to how much intrinsic value you believe Bitcoin holds. If you disagree with Musk and believe the cryptocurrency has a legitimate future, show your confidence by investing or holding. But if you’re only in this for the profit, be prepared for a potentially rocky ride.
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