The price of Bitcoin is plunging. It’s actually a sign that investing is spreading

When investors are stressed, risky assets are often the first to be dumped. It seems that is exactly what is happening this week, with the prices of Bitcoin, Ethereum and other cryptocurrencies falling sharply.

The price of Bitcoin fell below $ 42,000 on Friday, the lowest since September and about 40% drop from its November high. Ethereum’s price also fell to its lowest level in just over three months. The fall of the crypto market has been accompanied by a collapse of many tech stocks.

This week’s crypto price decline began after the Federal Reserve minutes released on Wednesday revealed that the central bank may raise interest rates sooner than expected. And Reuters reported that political upheaval in Kazakhstan – a popular bitcoin mining hub – is hitting Bitcoin’s mining network with internet shutdowns.

Bitcoin had a wild ride in 2021, with the price hitting a high above $ 68,000 in November. Some experts even predict that the price of Bitcoin will reach $ 100,000 in the next few years. Dogecoin and many other trendy cryptos have also climbed in value over the past year.

Despite the significant growth in the market, cryptos are still risky and speculative assets – and these tend to be the first to disappear during market tensions.

“When Bitcoin rallies, you know, good investors are willing to take risks,” says Matthew Tuttle, managing director of Tuttle Capital Management. Typically, when Bitcoin is rising, so are other speculative assets, such as higher beta stocks (higher beta stocks are considered to have a higher level of volatility than the overall market. ).

“When Bitcoin sells, a lot of the time tells you good investors get scared,” he adds. “They are not ready to take risks at the moment. “

Thus, the rise and fall in the price of Bitcoin can be used as a barometer to measure risk appetite in the broader market.

What Happens When Bitcoin Becomes A Mainstream Investment

Trading apps like Robinhood have made buying and selling cryptocurrency easier and more popular, and many say Coinbase’s public market debut last year gave the crypto market more legitimacy.

Institutional investors – which include investors who pool money to invest like hedge funds – also participate in the action. Just over half of institutional investors in Asia, Europe and the United States surveyed by Fidelity Digital Assets in 2020 and 2021 said they own digital assets, and seven in 10 said they plan to buy or buy. ‘invest in digital assets in the future, according to the survey. .

“We continue to see crypto come out of the early niche adoption phase,” said Adam Grealish, chief investment officer at fintech firm Altruist. “There is a larger base of people adopting it, which means there will be less idiosyncrasies in the market. “

In other words, if a small group trades in an asset, that asset will be influenced by what happens in that small group’s ecosystem. But as Bitcoin goes mainstream, it correlates more with other risky assets held by investors.

Falling Bitcoin prices can be frightening for crypto investors, but keep in mind that it is not uncommon. In December, the price of Bitcoin fell more than 20% at one point after comments from the Federal Reserve indicated the central bank could end its support for the economy sooner than many had hoped. . The price of cryptocurrency has also suffered from fear around the COVID-19 Omicron variant. Bitcoin then quickly recovered some of its losses.

Financial advisers tend to recommend that if you are investing in a risky asset, you should treat it as a long-term investment and not panic about every change in price, especially since they will continue to happen again. and even.

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