Utopia Weekly Industry Analysis Volume 1
A deep scan of the cryptocurrency industry conducted by our experts
Every week, Utopia will publish three industry analysis reports regarding the cryptocurrency performance, products and predictions. This will help you have a quick understanding to decide what the most important thing is right now and how you should react to volatile nature of the industry.
This is our very first analysis.
What happened to Bitcoin over the last week?
Bitcoin’s price hit a new low with drop below $35,000 over the last 6 months. On Saturday, Bitcoin’s price dropped below $35,000 several times, extending the trending that started when it dropped below $40,000 on Thursday. It bounced back a little bit and hovered above $35,000 on Sunday morning.
Why did the drop happen?
Bitcoin’s drop in last week signals the second time it dropped below $40,000 this month, and the first time it dropped below $35,000 since July 2021. The big drop for Bitcoin — Ethereum saw a big drop too — came amid the stock market’s worst week in nearly two years, and after the release of the Federal Reserve’s long-awaited report on a possible government-issued digital currency.
Before Thursday’s big drop, Bitcoin’s price was between $39,000 and $45,000 last week, and it’s been between $34,000 and $44,000 so far this week. Here’s how Bitcoin’s current price compares to its daily high point over the past few months:
· one week ago: $43,437
· one month ago: $51,483
· 3 months ago: $61,730
Recent slumping prices follow continued reports of surging inflation, a disappointing December jobs report and the release of minutes from the Federal Reserve Board’s December meeting, which signaled a winding down of measures to prop up what it described as a steadily improving economy. There was also a massive sell-off of Bitcoin futures, CoinDesk reported.
What’s the next move?
Emotions are running high and some people are panic selling, or at least have a think about it. But only depending on emotions won’t help investors in any ways.
5 things to do when cryptocurrencies plummet
Scared by a plunge or thrilled at the prospect of buying in cheaper? Either way, here are five things that you need to do when cryptocurrency prices crumble.
1. Stay calm
Whether you decide to sell your cryptocurrency or see a dip as an opportunity to buy more, you need to act with a cool head. Making emotional decisions, especially when trading, rarely results in anything good happening. So before you rush into the market in a panic, you’ll want to reflect on why you’re trading crypto in the first place.
Are you investing because you believe in the long-term opportunity?
Or are you here to make a quick buck on short-term trading?
The answer to these questions can help guide you to the proper decision. In either case, you’ll want to act in accordance with your own goals. In other words, if you believe in the long-term opportunity, think with that mindset. If you’re here for a quick trade, think with that mindset.
2. Assess the situation
Is there news driving the trading price of Bitcoin and other cryptos? It’s possible that there’s fundamental news that’s shifted the market’s sentiment and it’s not just price action or rumor driving sentiment.
In Bitcoin’s big plunge of 2021, actual developments may have hurt prices. China’s move to ban financial institutions from providing crypto-related services was a further clampdown, since the country had already banned crypto exchanges in 2017, though it hadn’t prohibited individuals from owning cryptocurrencies. Then late in 2021 the Federal Reserve decided to reduce liquidity in the financial system, and many cryptos have been on a significant downturn since then.
So these moves have been further significant blows to the burgeoning market, which had been enjoying significant capital inflows.
3. Remember that volatility is the name of the game
Cryptocurrency is volatile by nature. Because crypto generates no cash flow, traders have to rely on changes in sentiment to drive the price. That means the market can swing between rabid optimism, as it did in early 2021, to pessimistic despair, as it did a few months later. The furor around the Coinbase IPO in 2021 helped drive positive sentiment to crypto, while the reduction in monetary stimulus drove pessimism at the end of 2021 and start of 2022.
So when you have an asset that’s driven by sentiment, you have to realize that the emotions of traders propel the market. That’s true in the case of stocks, too, but they also may have a real stream of growing cash flows from their issuing company to accelerate them higher.
This volatility is exactly what draws professional traders, who use high-powered algorithms to make sophisticated trades, something that “mom and pop” traders don’t typically have the advantage of utilizing. Traders like volatility since it gives them a chance to make money — that’s Wall Street’s game.
4. Evaluate the future
How other major countries proceed remains to be seen, but it’s clear that cryptocurrencies face real threats in the form of regulation, including regulation that could literally put them out of business. As crypto gains traction, it risks becoming a victim of its own success.
It doesn’t help that crypto is used as part of ransom attacks and other criminal activities.
So it’s not out of the question that the utopian dreams of crypto purveyors are simply legislated out of existence. Of course, the political implications are but one facet of their future. Crypto faces other significant hurdles, including the financial and environmental costs of “mining” them.
Another risk: because of their volatility, many cryptocurrencies are mostly unusable as currency and it’s “being sold to people who have no intention of using it” as currency, as I discussed on Cheddar TV.
5. Determine how to act
After you’re done cooling down and have assessed the situation and what it means for the future, you’ll want to consider how to act.
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