Not sure about investing in Bitcoin? Here’s what can help you understand better

The cryptocurrency market has been witnessing a bear run over the past month. Bitcoin plunged by nearly 50% from its all-time high of ₹46 lakhs in three months. The dip has left investors split into two – some rushing to sell off to save losses and others who faithfully hold their stake with hope for the future. Despite the huge fall in Bitcoin and other leading cryptocurrencies, things are not bad in the cryptocurrency market.

According to crypto analytics site Glassnode, holders and institutional players are using this opportunity to double down their investment in Bitcoin, which showcases their belief in the asset class. In addition, retail investors are taking advantage of the dip to – India based cryptocurrency exchange CoinSwitch Kuber that grew by nearly 4.5 million new users during the descent.

What caused the Bitcoin dip?

There are various reasons for the recent Bitcoin price drop. Some of the primary reasons are:

• Environmental sustainability: Tesla’s CEO Elon Musk, who until recently was a big supporter of Bitcoin, refused to accept Bitcoin as payment for Tesla, citing its high carbon footprint and the high amount of energy that the mining process consumes.
• Regulation in China: China’s brutal crackdown on crypto trading and mining acted as a significant catalyst for Bitcoin’s slip. It pulled the currency to its lower end of below $30,000 for a brief period.
• Concerns about US regulation: The US treasury’s announcement to bring tougher reforms against cryptocurrency tax evasion and the Fed’s hinting of increased regulation in the space got Bitcoin frizzling down.

However, the largest cryptocurrency managed to rebound and rose over $35,000 in the past couple of days. Other cryptocurrencies such as Ethereum, Dogecoin etc., are also witnessing a slight push in their value after a significant crash.

Where is Bitcoin headed in the long run?
The recent uncertainty lurking in the cryptocurrency market was triggered by a series of unfortunate events such as Elon Musk’s tweets, China’s ban on cryptocurrency, etc. However, it is noteworthy that Bitcoin had managed to raise over 600% in nearly six months in the previous bull run. Thus, while a 50% dip in value may seem highly dramatic, we should also consider that Bitcoin is still trading 300% higher than its value last year and 30% higher than the start of 2021. Analysts predict that there are chances for Bitcoin’s value to drop further.

Here’s what the bulls of the crypto market think of Bitcoin long term perspective:

• Bitcoin has gone mainstream
  

Now more than ever, Bitcoin has been widely adopted as a mainstream asset across the globe. It is bought and sold by millions of people in different countries, including India. Major retail players such as Starbucks, Amazon, Expedia etc., are accepting payments in Bitcoin through third-party apps.
Recently, El Salvador, a South American country, announced that it would use Bitcoin as its official currency going forward. It is the first country to adopt Bitcoin for all payments. Additionally, over seven countries are underway into making it their official currency. While India is nowhere near accepting Bitcoin as a legal tender, the RBI came forward to clear the air around cryptocurrencies. It issued a fresh circular explicitly specifying that the old circular (regarding the previously imposed ban) does not stand valid since March 2020. The RBI suggested that banks carry on their dealings in cryptocurrencies as they would under existing regulations.

• The influx of institutional investments

Big institutions like MicroStrategy, Square Inc, Tesla etc., already hold a certain percentage of their assets in Bitcoin. Recently, Michael Saylor, the CEO of MicroStrategy, announced the buying of 13,005 bitcoins for $489 million in cash. The company now holds more than 1,05,000 bitcoins acquired at a total cost of $2.74 billion.

Also, institutions like Morgan Stanley and Goldman Sachs plan to launch crypto funds for their customers.

• Bitcoin is a hedge against rising inflation

Some argue that the limit in Bitcoins supply cap makes it a safe hedge against the rising inflation of the global economy.

Should you buy the dip?

The plunge in the market isn’t a new phenomenon. Bitcoin’s value has been through many ups and downs over the past 12 years. So, investors must be prepared for the price swings before entering the crypto market.

Here are a few things to ask yourself before investing in Bitcoin

1. Are you investing the money that you can afford to lose? – As a result of Bitcoin’s high volatility, there are ample opportunities to earn good profits. At the same time, the volatility could pose an increased risk. Ask yourself if you can bear the risk. It is easier to handle risk if you invest with the money you can live comfortably without. Make sure not to take money from your emergency or retirement funds. However, investing even a tiny amount into Bitcoin has proven to be effective in building wealth.
2. Are you here to make quick money? – Bitcoin is neither a get rich quick scheme nor does it claim to make you rich overnight. Therefore, take your time to understand the currency and the logic behind it. Then decide whether you are comfortable holding it for the long term.

For a new investor, it could be challenging to time the market and buy the dip at the currencies lowest price. To enable investors to make the most of the market, platforms like CoinSwitch Kuber offer features like limit orders. However, if you have already done your research and are enthusiastic about investing/trading in Bitcoin, then this might be a good time.

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