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Bitcoin fell below $19,000. How to handle falling crypto prices?

Bitcoin’s price fell below $19,000 on Monday morning, kicking off a week that is certain to be filled with turbulence.

A further decline in prices could occur if the Fed raises interest rates this week, with repercussions for the cryptocurrency and stock markets. The stock market experienced one of its worst weeks of the year last week, and bitcoin has tracked the stock market more closely this year. Bitcoin’s dip on Monday morning extends a slide that began last Tuesday when bitcoin plummeted below $21,000 following the release of August inflation statistics. Despite the Fed’s continual efforts to bring prices down, August statistics showed prices continued to rise.

Additionally, it occurs when the effects of the long-awaited Ethereum integration become more apparent. On Monday morning, Ethereum also declined, going below $1,300 for the first time since July.

Before this week’s decline below $19,000, the price of Bitcoin had been steadily increasing since June. Bitcoin continues to be impacted by a bleak economic outlook, as evidenced by a decline earlier this month following remarks by Federal Reserve Chairman Jerome Powell that suggested additional interest rate hikes are inevitable. With another Fed rate hike likely to be announced this week, bitcoin volatility is likely to increase substantially in the following days.

“Risky assets are suffering because Powell’s fight against inflation will stay vigorous even while it causes an economic slowdown,” says Edward Moya, a senior market analyst at Oanda.

The largest cryptocurrency has lost over 8% in the past week.

In recent weeks, the dominant cryptocurrency has traded in a rather narrow range between $19,000 and $23,000. Experts also cite a future recession, rising interest rates, the ongoing conflict in Ukraine, and inflation reaching a new 40-year high as reasons for the decline in stock and cryptocurrency prices. According to experts, the crypto market has been progressively mirroring the stock market recently, making it even more dependent on macroeconomic issues. Ethereum has exhibited a comparable pattern.

Bitcoin has not exceeded $50,000 since December 25, 2021. Despite the ups and downs, Bitcoin’s price has declined by nearly 70% since its all-time high above $68,000 on November 10. This decline has been attributed to surging inflation, a sluggish job market recovery, and the Fed’s ongoing signals that it will begin winding down its emergency measures to support the economy.

Here is how the current price of Bitcoin compares to its daily peak over the past few months:

Bitcoin entered 2022 on a relatively high note despite a poor start to the year, with a good November and early December before the current downward trend. After beginning 2021 at the $30,000 level, Bitcoin rose throughout the year and reached its all-time high on November 10 when it surpassed $68,000.

Although Bitcoin’s price has fallen dramatically from its most recent all-time high, many analysts still anticipate that it will surpass $100,000 at some point in the future, describing it as a matter of when not if. Shortly after Bitcoin’s most recent all-time high in November, Ethereum’s price surpassed $4,850 to establish a new all-time high. Ethereum has experienced comparable volatility since its most recent peak.

Bitcoin surpassed $60,000 for the first time in 2021 in April, and the price movement since then illustrates the cryptocurrency’s unpredictability at a time when more and more individuals are interested in participating. In the weeks between its lowest point in July, when it fell below $30,000, and its most recent peak in November, Bitcoin fluctuated significantly. The future of cryptocurrencies will undoubtedly involve a great deal more volatility, according to experts.

We’ve spoken with investment professionals and financial consultants that advise against investing a significant portion of your account in this asset type for this reason. They work with clients to ensure that volatile crypto investments do not interfere with other financial goals, including building an emergency fund and paying off high-interest debt.

Nate Nieri, a CFP at Modern Money Management in San Diego, California, says, “You have a high probability of losing everything, but a low chance of winning big.” “Don’t bet an amount that would burden your family or hinder you from reaching your objectives,” he advises.

How does this most recent stock market crash compare to past ones, or even to ordinary stock market declines, and what does this indicate for investors?

What Does This Price Drop Mean for Investors in Cryptocurrencies?

Price fluctuations are to be expected for people who use a buy-and-hold strategy to invest in cryptocurrencies for the long term. The founder of Humphrey Talks and a personal finance guru, Humphrey Yang, says he avoids examining his accounts during dangerous market falls because he is not particularly concerned.

“I’ve also gone through the 2017 cycle,” Yang says, referring to the “crypto crash” of 2017 that saw the value of Bitcoin and other major cryptocurrencies plummet. “I am aware that these assets are quite volatile, since some days they can drop by as much as 80%.”

Experts advise limiting bitcoin investments to less than 5% of your wealth. According to Bill Noble, chief technical analyst at Token Metrics, a cryptocurrency analytics firm, once you’ve done that, you shouldn’t worry about price fluctuations because they will continue to occur.

Noble asserts, “Volatility is as old as the hills, and it’s not going away.” It is something that must be dealt with.

As long as your crypto investments don’t interfere with your other financial objectives and you’ve only invested what you’re ultimately willing to lose, Yang advises following the same method that works for all long-term investments: set it and forget it.

If this type of extreme decline disturbs you, you may have too much invested in cryptocurrencies. You should only invest money you are willing to lose. Even if the decline is causing you to reconsider your crypto holdings, the same advice still applies: do not act rashly or abruptly alter your approach. Consider what you may be more comfortable with in the future, such as allocating less to crypto or diversifying through crypto-related equities and blockchain funds as opposed to directly purchasing crypto (though you should still expect volatility when cryptocurrency markets fluctuate).

“Do not examine it. That is the best course of action. “If you let your emotions take over, you may sell at the wrong time or make the wrong judgment,” adds Yang.

What Should You Do If You Are Interested in Cryptocurrencies But Have Not Yet Invested?

Yang’s set-it-and-forget-it approach to cryptocurrencies mirrors his investment strategy for the regular stock market, but some analysts believe cryptocurrencies are too distinct from traditional investments to be compared historically. A’Shira Nelson of Savvy Girl Money avoids the situation accordingly.

Nelson invests mostly in low-cost index funds because, as she puts it, “I can see history on that.” Due to the novelty of cryptocurrencies and the absence of traceable data, she is suspicious of these wild swings.

Potential investors seeking to purchase the dip should recognize that variations are normal and be prepared for continued volatility of this nature. Even if you invest now, when prices are relatively cheap, you should anticipate further declines. Again, only invest what you are willing to lose, and only after other financial priorities, such as emergency savings and traditional retirement accounts, have been met.

What’s Behind Bitcoin’s Recent Drop?

Many investors view Bitcoin’s price fluctuations as par for the course, but “volatility is difficult for individual investors to handle,” adds Noble. He, like Yang, cautions against selling too quickly.

Recent price fluctuations are the result of escalating inflation, continuous uncertainty regarding the country’s protracted battle with COVID-19, and new regulatory steps by the U.S. government, such as Biden’s recent executive order. In a market as new and unproven as bitcoin, it does not take much to cause significant price fluctuations. According to a report by blockchain analysis firm Glassnode Insights, new short-term investors selling their holdings in response to the most recent decline may be contributing to Bitcoin’s price decline.

Even while variations are to be expected, Noble has been astonished by some of the recent large declines. “I believed that as the market matured, these occurrences would become less common and severe. “Man, was I wrong!” he exclaims.

Noble theorizes that a mix of factors has contributed to some of the declines, including excitement about low-quality coins, harsh comments from Elon Musk, and China’s recent ban on crypto services. According to Noble, this combination of characteristics has the potential to make sales “much more violent.”

He compares the decline to the 1987 stock market crisis, after which it took months for the markets to recover. Noble argues that a quicker recovery is possible because cryptocurrencies move far faster than stocks did in the 1980s.

“Do not panic and vomit,” Noble advises. If you maintain small stakes, you can attempt to tolerate the volatility.

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