Cryptocurrencies Dip Even Further: Is This The End?

Looking at the recent crypto downward slide, it is as though the cryptocurrencies dip will continue forever. Thursday night’s crash saw Bitcoin trading at $38,808. Ethereum also dipped by 9%. Today, the situation appears worse.

Bitcoin’s price seemed to have stabilized on Sunday, 23rd January 2022 after an unusual harsh sell-off, but it had been still on target for its worst weekly performance in 8 months.

Currently, Bitcoin is seated slightly below $35,000, and hollows to and fro. In the last 24 hours, Bitcoin was caught at $34,736. It appears that more than $1.6 billion of Bitcoin trading positions were out rightly liquidated over the past 2 days due to the obvious heavy downtrend. 

Experts reckon that this is by far Cryptocurrency’s worst performance since May 2021 when China first began to crack down with Bitcoin mining regulations. Sadly, the currency has maintained a 19% heavy downtrend for the past seven days prompting a much broader cryptocurrencies dip.

Speculations Surrounding This Heavy Downtrend

Cryptocurrencies technical analysts are speculative on the reasons behind this massive slide of Bitcoin and other digital currencies. 

Numerous users of eToro and plus500 are of the opinion that crypto traders are pricing in fears that the Federal Reserve will move swiftly over the next few months to tighten monetary conditions that have been at a very loose level since the outbreak of corona-virus. 

The Federal reserve stimulus was greatly cited as the reason for good gains for many cryptocurrencies in 2020 and 2021. This stimulus was also instrumental in the ascension of Bitcoin to an all-time high of $69,000.

This occurrence has once more shown how volatile the cryptocurrency market can be. David Duong, Head of Institutional Research at Coinbase, wrote in a Saturday report thus; “one of the bullish drivers for cryptocurrencies over the last two years is the surplus of pandemic related fiscal and monetary stimulus globally, much of this stimulus is coming to an end.”

Bitcoin’s Crash

On the other hand, Katie Stockton, founder of the data analysis firm, Fairlead Strategies, said that the free-fall in Bitcoin’s price seems emotionally charged.

She went on to mention that because stakeouts are common, it is better to wait for confirmation of a breakdown below cloud-based support of about $37,400, before taking a long-term bearish stance.

Furthermore, it looks as though not everyone is lamenting because of the crash of Bitcoin. El Salvador, one of the most up-to-date tech countries, has taken advantage of the drop of Bitcoin and has bought over 410 BTC for about $15 million. The President of El Salvador, Nayib Bukele, stated via a tweet: “some people are selling really cheap.“

Before now, we have seen Bitcoin hit multiple new all-time high prices — followed by big drops — and more institutional buy-in from major companies. Ethereum, the second-biggest cryptocurrency, notched its own new all-time high recently also. U.S. government officials and the Biden administration have increasingly expressed interest in new regulations for cryptocurrency.

All this while, investor’s interest in crypto has rapidly increased: it is a hot topic not only among investors but in popular culture too, thanks to everyone from long-standing investors like Elon Musk to that kid from your high school on Facebook.  

Dave Abner of Gemini, a popular cryptocurrency exchange said that 2021 was in several ways a breakthrough for the crypto industry as a result of the massive attention it received from various levels of investors. 

However, the industry is only in its infancy and constantly evolving and that is a big reason why every new Bitcoin high can be easily followed by big cryptocurrencies dips. It is  difficult to predict the direction of things in the long-term, but in the coming months, experts are following the issues from regulation to institutional adoption of crypto payments in order to get a better sense of the market. 

While exact predictions are presently impossible, experts were able to identify the following areas of attention that will shape the cryptocurrencies space in time to come:

Cryptocurrency Regulation

Since regulation has been identified as one of the biggest issue in the crypto industry globally. Jeffrey Wang, head of the Americas at Amber Group, a Canada-based crypto finance firm, feels that a very clear regulation will be welcome.  

Therefore, investors both institutional and retail should expect continued conversations about cryptocurrency regulation. In the meantime, Lawmakers in Washington D.C. and across the planet try to work out the way to establish laws and guidelines to make cryptocurrency safer for investors and less appealing to cybercriminals. 

In view of the above, China announced in September that all cryptocurrency transactions in the country are illegal, effectively putting the brakes on any crypto-related activities within Chinese borders. In the U.S., things are less clear. Federal Reserve Chair Jerome Powell said recently that he has “no intention” of banning cryptocurrency within the U.S while Security and Exchange Commission Chairman Gary Gensler has consistently commented on both his own agency’s and the Commodity Futures Trading Commission’s role in policing the industry.  

Gensler recently expressed his concerns about investor’s safety, he felt that investors are likely to get hurt if stricter regulation is not enacted. Plus, the fact that the IRS is interest in making sure investors know how to report virtual currency when they file their taxes. Gensler’s and Powell’s comments are consistent with an emerging view among the Biden administration and other U.S. lawmakers that more cryptocurrency regulation is required.

The truth is like with most things, cryptocurrency regulation comes with lots of  hurdles. Since different agencies may or may not have jurisdiction to oversee everything,” says Wang. “And this differs state by state.”

One thing is certain, clear regulation would mean the removal of a “significant roadblock for cryptocurrency,” says Wang, since U.S. firms and investors are operating without clear guidelines at the moment.

Impact of New Regulation On Investors

One major impact of regulation could be seen in the $1.2 trillion bipartisan infrastructure bill recently signed by the president which includes crypto tax reporting provisions that could make it easier for the IRS to trace crypto activity among Americans. 

Even before the new legislation, that’s why experts say investors should keep records of any capital gains or losses on their crypto assets. The new rules may also make it easier for investors to properly report crypto transactions. 

Regulatory announcements will also affect the price of cryptocurrencies in already volatile markets. Market volatility is why investing experts recommend keeping any cryptocurrency investments to less than 5% of your total portfolio and never invest anything you are not comfortable with losing. 

Ultimately, many experts believe regulation may be a good thing for the industry. “Sensible regulation is a win for everybody,” says Ben Weiss, CEO and co-founder of Coin Flip, a cryptocurrency buying platform and crypto ATM network. “It gives people more confidence in crypto, but I think it’s something we have to take our time on and we have to get it right.”

Crypto ETF Approval

Another aspect of new regulation that will impact the crypto market is the exchange traded fund (ETF) which is a fund consisting of cryptocurrencies. Basically a cryptocurrency ETF tracks the price of one or more digital tokens, based on investor sales or purchases, the share price of cryptocurrency ETFs fluctuates on a daily basis. 

A major breakthrough has been accomplish on this front, with the first Bitcoin ETF making its debut on the New York Stock Exchange in October. This development represents a new and more conventional way to invest in crypto. The BITO Bitcoin ETF allows investors to shop for cryptocurrency directly from traditional investment brokerages with which they have an existing accounts, like Fidelity or Vanguard. 

However, some experts feel that BITO ETF is not enough, because while the fund is linked to Bitcoin, it does not actually hold the crypto directly. The fund instead holds Bitcoin futures contracts. While Bitcoin futures follow the overall trends of the particular crypto, experts say it is not going to track the worth of Bitcoin directly. For now, investors must continue expecting an ETF that holds Bitcoin directly.  

ETF approval has been in consideration by the SEC multiple times over the past few years, but BITO is the first to receive approval. 

What A Crypto ETF Means For Investors

It is too early to tell how many investors will get in on BITO — but the fund did see lots of trading action in its first weeks. In general, the more accessible cryptocurrency assets are within traditional investment products, the more Americans could stock and influence the crypto market. 

Instead of learning to navigate a cryptocurrency exchange to trade your digital assets, you can add crypto to your portfolio directly from the same brokerage with which you already have a retirement or other traditional investment account. 

However, investing in a crypto ETF, like BITO, still carries an equivalent risk as any crypto investment. It is still a speculative and volatile investment. Therefore if you are not prepare to lose the money you put into crypto by purchasing on an exchange, then you should not put it in a crypto fund either. You must carefully consider if you are willing to take on the risk of having cryptocurrency in your portfolio.

Broader Institutional Adoption To Combat Cryptocurrencies Dip

Broader institutional cryptocurrency adoption; this is another factor in regulation that will greatly impact the crypto industry.

It is common knowledge that mainstream companies around the globe and  across multiple industries have taken active interest — and in some cases gone ahead and invested in — cryptocurrency and blockchain in 2021. For instance, AMC, recently announced it will be able to accept Bitcoin payments by the end of this year. 

In addition, Fintech companies like PayPal and Square are also betting on crypto by allowing users to buy on their platforms. Tesla continues to travel back and forth on its acceptance of Bitcoin payments, though the company holds billions in crypto assets. Experts predict more and more of this buy-in. 

“We have seen an incredible amount of inflow of attention, and that will  continue to drive the expansion of the industry for a short time now,” says Abner. 

Some experts predict bigger, global corporations could jump-start this adoption even more in the latter half of this year. “What we are watching is institutions getting involved in crypto, whether it is Amazon or the big banks,” says Weiss. A huge retailer like Amazon could “create a sequence reaction of others accepting it,” and would “add a lot of credibility.”

Indeed, Amazon has recently sparked rumors that it is making moves to that end by sharing employment posting for a “digital currency and blockchain product lead.” Walmart is additionally recruiting a crypto expert to oversee its blockchain strategy. 

What More Institutional Adoption Means For Investors

While paying for things in cryptocurrencies doesn’t make sense for most people right now, more retailers accepting payments might change that orientation in the future. It will likely be much longer before it will be a smart financial decision to spend Bitcoin on goods or services, but further institutional adoption could bring about more use-cases for everyday users, and successively, have an impression on crypto prices. Nothing is guaranteed, but if you purchase cryptocurrency as a long-term store of value, the more “real world” uses it has, the more likely demand and value will increase.  

Bitcoin’s Future Outlook

Over all, Bitcoin is a good indicator of the crypto market in general, because it’s the largest cryptocurrency by market capitalization and the rest of the market tends to follow its trends. 

Bitcoin’s price had a wild ride in 2021, and in November set another new all-time high price when it went over $68,000. This latest record high follows previous high points over $60,000 in April and October, as well as a summer drop to less than $30,000 in July. This volatility is a big part of why experts recommend keeping your crypto investments to less than 5% of your portfolio to begin with. 

But how high will Bitcoin climb? A lots of experts say it is only a matter of when, and not if Bitcoin hits $100,000. Bitcoin’s past may provide some clues as to what to expect looking forward, in consonant with Kiana Danial, author of “Cryptocurrency Investing for Dummies.”

Danial says there are many huge spikes followed by pullbacks in Bitcoin’s price since 2011. “What I expect from Bitcoin is volatility short-term and growth long-term.”

What Bitcoin Price Volatility Portends For Investors

Bitcoin’s volatility is more reason for investors to play a steady long-term game. If you’re buying for long-term growth potential, then don’t worry about short-term swings. The best thing you can do is not look at your cryptocurrency investment, or “set it and forget it.” As experts continue to tell us each time there’s a price swing — whether up or down — emotional reaction can cause investors to act rashly and make decisions that end in losses on their investment.

Is There a Future after The Cryptocurrencies Dip?

All said and done, we can speculate on what value cryptocurrency may have for investors in the coming months and years (and many will), but the reality is it is still a relatively new and speculative investment, without much history on which to base predictions. 

No matter what a given expert thinks or says, no one really knows. That is why it is very important as in all investment matters to invest only what you are prepared to lose, and stick to more conventional investments for long-term wealth building.

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