Why did Bitcoin plummet? What happens after Bitcoin plummets?

Dec 08,2022
Why did Bitcoin plummet? What happens after Bitcoin plummets?

In the currency circle, it is believed that everyone knows about bitcoin. It can be said that investors entered the currency circle from the beginning of contacting bitcoin. Therefore, investors are very concerned about the price changes of bitcoin. It makes everyone happy and makes everyone worried. In short, some people are happy and others are worried. So why did Bitcoin plummet? What should we do after Bitcoin plummets? Next, let's have a look.

Why did Bitcoin plummet?

1. The uncertainty of market information causes concern

The sharp rise of Bitcoin this year was mostly influenced by Elon Musk, President of Tesla. Tesla accepted Bitcoin as the payment method and invested nearly 1.5 billion dollars in Bitcoin. The fanatical market sentiment directly led to a new high in Bitcoin. But then Musk stopped accepting Bitcoin and hinted that Bitcoin had already been sold. This is the fundamental reason for the sharp drop of Bitcoin. Because investors regard Musk as the currency market's direction indicator, and the unpredictable remarks make the market lose confidence.

Not only that, the US Treasury Department began to consider paying taxes on virtual currency transactions. It stipulates that every virtual currency transaction with an equivalent value of more than 10000 dollars must be reported to the IRS. The Chinese Mainland government has also begun to strengthen the supervision of Bitcoin, and even decided to crack down on Bitcoin mining and trading. This means that the global regulation of virtual currency led by Bitcoin may be strengthened, which also caused a sharp decline.

2. High inflation worries about liquidity

The April CPI data released by the United States on May 12 showed that inflation surged 4.2% year-on-year in April, a major year-on-year increase since September 2008. This means that after the surge of commodities and the release of trillions of dollars of economic stimulus plan by the US government, the pressure of inflation is huge.

At the recent meeting of the Federal Reserve, some members also indicated that they may begin to discuss the gradual withdrawal of easing policies in the next step. If the Federal Reserve starts to withdraw its easing policy to balance inflation, the hot money flowing into the market may be significantly reduced. This also means that it is difficult to continue to buy virtual currency at such a high price. It is precisely because of such concerns that Bitcoin is under pressure to sell.

3. Short term leveraged traders break positions, leading to trampling

Bitcoin transactions can take the form of spot transactions and contracts. Contracts are "futures" transactions with leverage. A large number of bitcoins can be traded by providing a certain amount of collateral. In the recent adjustment of Bitcoin, some contract investors suffered from a large position because they failed to supplement the guarantee in time, which accelerated the decline of Bitcoin. According to the data analysis of Bitcoin Jiayuan, when Bitcoin fell below $50000 for the first time on April 23, more than 460000 people broke their positions. The excessive positions represent that these investors have sold Bitcoin passively. Therefore, the continuous trampling effect caused by this phenomenon makes Bitcoin decline even more.

4. Concerns about the security of the exchange

When Bitcoin fell, many exchanges had problems such as unable to withdraw cash and transaction card screen. Famous exchanges, such as Jin'an and Huoyuan, all exposed some problems during the decline. Therefore, many investors may worry about their investment security and start to withdraw from Bitcoin trading. These investors who withdrew also contributed to the decline of Bitcoin.

What happens after Bitcoin plummets?

In fact, in terms of the overall trend of Bitcoin, although the decline reached 50%, its price is still at a relatively high historical level. On the one hand, it reflects the affirmation of the market for the value of Bitcoin, and on the other hand, it brings better trading opportunities. If we want to operate Bitcoin at this time, we can think from two perspectives.

1. Long term investors

For long-term investors (note that long-term means at least 3-5 years), if you are firmly interested in Bitcoin, then adjustment is the best time to add positions. In terms of technical analysis, the price can be adjusted by 50% from the high level to consider adding positions. In other words, Bitcoin is a good margin when it falls to around 30000 dollars.

If the price continues to fall in the future, you can continue to add positions at your discretion. As long as the future logic of Bitcoin has not changed, there will naturally be a time for greater achievements.

2. Short term traders

Short term traders can choose to use CFD for several band transactions. With the low transaction cost and threshold of CFD, we can repeatedly look for trading opportunities in the digital currency market, and we can go long and short in a convenient way.

As far as the current situation is concerned, although Bitcoin has rebounded significantly after hitting $30000, short-term negative emotions may not be completely digested. The upper 42000-45000 line has obvious resistance. If the short-term line cannot break through, you can consider trying to short. On the contrary, if you can break above $45,000, you can choose to continue to long and look above $50,000.

Speaking of this, I believe you have a certain understanding of why Bitcoin plummeted and what to do after it plummeted. In general, Xiaobian also reminds investors that the currency circle market is volatile and unpredictable, and investment is accompanied by certain risks. You must have a comprehensive understanding before entering the market, and do not invest blindly.