Bitcoin Falls Below $60,000 Here’s Why I’m Still Riding the Cryptocurrency Roller Coaster. The Motley Fool

As the most popular cryptocurrency, Bitcoin demand increases because supply is becoming more limited. Long-term, wealthier investors hold their Bitcoins, preventing those https://www.xcritical.com/ with fewer assets from gaining exposure. According to the National Bureau of Economic Research, one-third of all Bitcoins were held by the top 10,000 investors at the end of 2020.

Why Are Resistance and Support Levels Important?

However, the 100 moving average acted as resistance, causing Bitcoin to drop 2.5% to test the support zone around $56,600 again. The Relative Strength Index (RSI) showed bullish momentum at 61 points, and the Fear and Greed Index improved from a high fear level of 26 to 33, indicating reduced market fear. Combine resistance and crypto volatility trading support levels with other technical indicators, fundamental analysis, and risk management strategies to make well-rounded trading decisions. In conclusion, we think it is helpful in times of high volatility for investors to revisit some of the seemingly basic foundations of bitcoin’s properties and why it is so volatile. They usually have huge amounts of crypto and money at stake and can move the market significantly by buying or selling large amounts of cryptos.

Crafting a Model and Narrative to Understand Bitcoin’s Volatility Regimes

As demonstrated above, we believe there is a classic psychological narrative that links the relationship between bitcoin’s realized volatility and addresses in profit known as seller energy. However, the more retail investors that enter the fray, the less experienced the market becomes. Bitcoin has regularly suffered 30% to 40% bear markets across its short history. High volatility creates short-term uncertainty across crypto markets, which can lead to temporary losses, triggering panic selling.

Bitcoin’s Volatility Has Declined and Could Decline Even Further

— Candlestick patterns like doji, engulfing patterns, or hammer near resistance or support levels can offer additional confirmation of potential price movements. While resistance and support levels are powerful on their own, combining them with other technical indicators can enhance trading decisions, as shown below. — In pullback trading, traders wait for the price to retrace, or ‘pull back’, to a support or resistance level before entering a trade in the direction of the prevailing trend. — Round numbers or psychological levels, such as $35,000, $60,000, or $70,000 for Bitcoin, often act as significant support or resistance levels. These levels are based on the natural human tendency to gravitate towards whole numbers when making trading decisions. A support level is a price point where the demand for Bitcoin is thought to be strong enough to prevent the price from falling further.

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Approximately 4.55 million Bitcoin addresses, holding a total of 2.26 million BTC, bought their assets between $55,507 and $61,396, with an average buying price of $58,690. A significant resistance level is at $60,000, where 6.93 million addresses hold 3.14 million BTC, bought between $61,396 and $72,500, creating a substantial $11,000 price gap. Regularly update charts and reassess resistance and support levels based on the latest price action and volume data. While resistance and support levels are important, relying solely on them without considering other factors can lead to suboptimal trading outcomes.

• Recent trends indicate that market panic often creates buying opportunities, allowing Bitcoin whales to accumulate assets and strengthen their positions.
• The increased demand and limited supply of coins (there will only be 21 million Bitcoin) create a rise in price because more people want to purchase them than there are available to sell.
• Thousands of different cryptocurrencies exist, with new projects and tokens launching every day.
• The incorporation of new information and “the market” reflecting that information through prices is a process, not a static or one-time evaluation.
• Digital assets are speculative and highly volatile, can become illiquid at any time, and are for investors with a high-risk tolerance.
• And although bitcoin is sometimes compared to gold in being considered a “store of value,” it doesn’t have any physical presence.

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Government agency views of cryptocurrency can also affect Bitcoin’s price. For example, the Internal Revenue Service (IRS) considers Bitcoin a convertible virtual currency because you can convert it to cash. The IRS also considers Bitcoin a capital asset if it’s used as an investment instrument. Additionally, if you mine a Bitcoin, you are required to report it as income based on the coin’s market value on the date you receive it.

Putting volatility in the right framework

“The price is only and purely whatever people are prepared to buy it from you for,” she tells me. Last month saw two much lower-profile but nonetheless significant coins collapse – and this knocked a lot of confidence in the market overall. A curated list of the most relevant news and developments along with our two Sats. Fidelity Digital Assets and the Fidelity Digital Assets logo are service marks of FMR LLC.

In the last few months of 2023, investor expectations of ETP approvals drove Bitcoin’s price from about $27,000 to more than $43,000. Bitcoin volatility is also partly driven by the varying belief in its utility as a store of value and method of value transfer. A store of value is an asset’s function that allows it to maintain value in the future with some degree of predictability. Many investors believe that Bitcoin will retain its value and continue growing, using it as a hedge against inflation and an alternative to traditional value stores like gold or other metals.

Supply and demand influence the prices of most commodities more than any other factor. Bitcoin’s market value is affected by how many coins are in circulation and how much people are willing to pay. By design, the cryptocurrency is limited to 21 million coins—the closer the circulating supply gets to this limit, the higher prices are likely to climb. In July of 2024, BTC’s price reached just below $70,000 again when Ethereum spot ETFs started trading, seen by many traders as a bullish signal.

Ensure that the levels are drawn on higher time frames (daily, weekly) for more significant levels. Additionally, using multiple methods (e.g., trendlines, moving averages) can help confirm the validity of these levels. But simply knowing about the Bitcoin cycle helps to put its current price into perspective.

This means that it can’t be quantified through traditional valuation methods such as discounted cash flows. And although bitcoin is sometimes compared to gold in being considered a “store of value,” it doesn’t have any physical presence. Traditional financial companies, such as Visa (13.81%) and JPMorgan Chase (14.98%), show about three times less volatility over 10 years than bitcoin. This is an edge case where the increase in price from the demand shock is so large that the difficulty adjustment will hit its maximum cap, and therefore take time to fully reach equilibrium. And even if so, in the long run, the block time will converge to 10 minutes and the issuance schedule will resume as before. Rumors about regulations tend to impact Bitcoin’s price in the short term, but the significance of the impacts is still being analyzed and debated.

And if bitcoin never becomes transactional money and instead just takes half the value out of the gold market, that’s fine, too. In that scenario, my clients will only make five times their investment from here. In bitcoin’s 12-year price history, anyone who has treated an investment in bitcoin this way has seen the value of that investment rise by a lot. The average gain over any five-year period in bitcoin’s history has been significant. So treating a bitcoin investment like venture capital or growth equity makes logical sense because it’s much younger than gold and needs to prove itself to be a worthy competitor over time.

While this still exceeds the volatility of all other assets analyzed, the gap has noticeably narrowed compared to the 10-year period. The empirical analysis is based on a dynamic Bayesian model averaging approach for twenty-two potential determinants. The results reveal that the most important factors for Bitcoin volatility are Google trends, total circulation of Bitcoins, US consumer confidence and the S&P500 index. It’s rare to view cryptocurrency news and not see an analyst’s, investor’s, or fan’s opinion of how high Bitcoin’s price will get. Unfortunately, how high or low the cryptocurrency’s price will go is unknown.

When a new cryptocurrency launches, it typically experiences an initial spike of excitement as people hear about it for the first time. This often causes people to rush to buy and sell the new coin, which drives up the price to unsustainable levels. This is reflected in the chart below by a rise in seller energy above the 95th percentile in particularly critical moments. Furthermore, as bitcoin’s volatility fell throughout 2023, its market cap rose. Therefore, the drop in volatility cannot be due to a lack of interest in bitcoin. Capital flowed into bitcoin throughout 2023 amidst a downward trend in realized volatility.

Investment results cannot be predicted or projected.Fidelity Digital Assets and the Fidelity Digital Assets logo are service marks of FMR LLC. Bitcoin, the world’s first and most well-known cryptocurrency, is often regarded as the gold standard for the crypto market. Its history of volatile price movements has attracted traders and investors seeking to profit from these fluctuations.

A bitcoin has value because it can be exchanged for and used in place of fiat currency, but it maintains a high exchange rate primarily because it is in demand by investors interested in the possibility of returns. So, for now, governments, regulators and bankers can allow bitcoin and the ecosystem being built around it to grow and take market share from gold largely unfettered. The recent launch of an exchange-traded fund (ETF) based on bitcoin futures is just the latest evidence of this dynamic.

However the “brave” who bought Bitcoin when the ad came out probably won’t now be feeling they were done any “favours” – it was worth about three times as much then as it is today. “That’s when it gets scary for people because, if enough people head for the exit, there’s no floor. There’s nothing to stop it trading at $10,000 tomorrow, if enough people give up or are forced to sell.” It’s unregulated and unprotected by the financial authorities, so if you’re using your savings to invest in it and it loses value, or you lose access to your crypto wallet, your money has gone. This changed with President Nixon abandoning all linkages of the U.S. dollar to gold in 1971, removing the peg or fixed exchange rate of gold to U.S. dollars and adopting a free-floating exchange rate. The U.S. dollar is not volatile but has also not been a good store of value in terms of purchasing power, while bitcoin is considered very volatile, but has been a much better store of value over the past ten and even five years.

— Range trading involves buying Bitcoin at support levels and selling at resistance levels. This strategy works best in a sideways market where the price moves within a defined range. In the context of Bitcoin and other cryptocurrencies, these levels are specific price points on a chart that act as psychological barriers for traders. In other words, Bitcoin has no fundamentals, and will never have fundamentals. The only thing that Bitcoin investors have is a hope, or maybe closer to a prayer, that the value of Bitcoin will increase in the future based on demand.

Understanding the factors that influence its market price can help you decide whether to invest in it, trade it, or continue watching its developments. When asked about Bitcoin’s behavior during market panic, Saylor explained that long-term holders typically profit, as Bitcoin has historically offered an average annual return of about 44%. He also noted that even short-term traders find many arbitrage opportunities in the market.