Bitcoin price dropped. What happened? What's the price forecast?

Bitcoin price drastically dropped. 20% in a week, and 10% in a day. The volatility of bitcoin is no news. Still, bitcoin price volatility was pretty stable in 2022. And quite suddenly the price of bitcoin plunged in the second week of May. This article is to explain the reason behind such sudden movement in bitcoin price, explore any good news to bump up the digital asset prices as well as provide strategies investors can take during this low season. 

Why so sudden drop?

If you take a step back, you will realize bitcoin is not the only asset with a plunging price. The same goes for stock markets, especially tech stocks under the Nasdaq Index. According to a BBC report, investors are moving their money from riskier assets like digital assets and stocks to safer ones like US dollars. If I remember correctly, digital assets are promoted as a good hedge against inflation as well as other assets. In other words, the price of bitcoin is supposed to be up when other assets like stocks are down. However, as the digital assets gain more popularity among investors and become a more established investment, It has grown more synchronized with other assets in their price movement. 

The reasons the current asset market is shocked are:

• Interest rate hike
• Russian war against Ukraine
• Synchronization with other assets such as Nasdaq stocks
• Investors psychology getting cold

The gloomy situation of the bitcoin investment scene can be well reflected in the 'Fear & Greed Index' which recorded 10, or 'Extreme Fear' on May 10. 

 

Any good news to push the bitcoin price back?

The U.S. is increasing interest rates because it needs to stop inflation. Inflation means that the services and goods will be more expensive tomorrow than today. In other words, your money will lose its buying power. This is no surprise given the economy expands, but the problem is not the direction, but the speed. The current inflation is happening way too fast. President Biden declared that fighting inflation is his top priority. The best way to do that is to increase the interest rate, meaning it is more expensive for investors to borrow money to buy assets. So they pull their investment so that they can pay their loan to banks. Hence the sudden drop. 

The good news is if President Biden succeeds to put out inflation, the interest rates would stop climbing. It will bring investors to the asset markets, pumping up the prices back.

The introduction of a new cryptocurrency investing ETF in Australia might help. This ETF will attract investors who have shunned the direct investment in digital assets. Again, meaning more money to the cryptocurrency market. 

 

What is the bitcoin price forecast and how to deal with the current market?

The price of bitcoin, after breaking the $30,000 line, seems to be stable for now. The so-called whales, who have a large volume of bitcoin continue to buy. And holders are not letting their bitcoins go. If the US successfully suppresses inflation, the price can make a drastic u-turn. But otherwise, the bitcoin price may hover around $20,000 to $30,000. The strategy I can recommend is two-fold. HODL & DCA. If you already have bitcoin, hold them. It seems you have missed the chance to sell. And if you are an investor who has not bought bitcoin yet, this might be a good time to start your dollar-cost averaging investment. All those investments should be made with the money that you can live without for a while. In good times and bad times, you have to invest only as much as you can afford to lose. That is called 'risk management.'