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Cryptocurrency prices have nearly recovered the majority of the losses they sustained earlier this year. Is this a signal that it's time to invest in bitcoin?
For many investors, early this year was an unfavorable moment to invest in crypto, notably bitcoin, the group's most popular cryptocurrency. Bitcoin's price roughly halved in January, from $69,000 on Nov. 10 to $35,000 on Jan. 22.
Alt coins, or alternative cryptocurrencies to bitcoin, also experienced significant drops. Ethereum, the second largest cryptocurrency by market capitalization, as well as the extremely popular meme coins dogecoin and shiba Inu, all suffered losses.
This also applied to native coins associated with decentralized finance, or DeFi, such as solana, avalanche, compound, and aave. What makes these examples noteworthy is that they involve financial services (loans and trading) that the crypto industry offers to businesses and individuals.
The falls confirmed what investors have known all along: Bitcoin and cryptocurrencies in general are highly volatile and dangerous investments. When you invest in them, you should anticipate both ups and downs.
Cryptocurrency may be a money pit and a cause of extreme disappointment for speculators and investors seeking rapid riches. Despite the lofty claims made by crypto players, experts warn that the industry is not yet mature, and investors should exercise care.
It may pay off for investors with a longer time horizon. Consider: In less than ten days, the cryptocurrency market has recouped nearly all of the losses it sustained during the last two months. Bitcoin, for example, has climbed 20% since mid-March, erasing all 2022 losses and leaving it up roughly 2% for the year.
Why Are Prices Soaring Right Now?
The increase in cryptocurrency values is due to a number of factors. One is that cryptocurrency values, particularly bitcoin, have historically tracked the stock market. To paraphrase the proverb, when the stock market coughs, crypto succumbs. When the stock market rises, as it has recently, crypto also rises.
The VIX, a volatility index that is frequently referred to as the fear index, can assist you in tracking the direction of the stock market and thus crypto.
Except for a few days in early February, the VIX increased significantly from January 14 and March 14. This period coincided with market concerns about the economic impact of Russia's invasion of Ukraine, as well as inflation, recession, and the Federal Reserve's decision to withdraw support for the economy, all of which occurred as the Covid-19 pandemic eased.
Bitcoin's Future Prospects Through 2022 and Beyond
Predicting Bitcoin's price has been a calamity waiting to happen. Many in the cryptocurrency field predicted that by the end of 2021, the price per coin will reach new all-time highs of $100,000 per coin. Rather than that, the coin reached a low of roughly $32,000. While it is still feasible for Bitcoin to reach this level, experts concur on the need for continuous volatility. In the long run, crypto aficionados believe that as acceptance grows, Bitcoin's value will climb.
Bitcoin is frequently compared to gold. Gold has a market capitalization of over $12 trillion dollars. Bitcoin has a market capitalization of less than $1 trillion. If Bitcoin is able to function as a store of value on a par with gold, the price per Bitcoin and its market capitalization may rise to more closely match gold's. While this may seem like a lofty order, Bitcoin is significantly easier to get and spend than actual gold.
Price volatility is to be expected as the market matures. Those interested in being a part of this crypto revolution must have a strong stomach and hold on tight.
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