Why is Bitcoin falling? Explore possible reasons
While social media commentators have been chatting about the unimaginable drop in NVIDIA (NASDAQ:NVDA) stock for several days, another risky asset, Bitcoin (BTC-USD), has also been in the red.
But is Bitcoin falling? With the digital asset falling to $59,000 on Monday afternoon, it feels as if a “great reckoning” is about to happen.
But perhaps the term “great turnaround” would be more appropriate, as the Dow Jones Industrial Average (DJIA) closed solidly in the green on Monday. It’s worth considering whether this is a good time for investors to cash out their cryptocurrencies for safe haven.
As always, a calm attitude will yield better results for investors than a cold response. But in an election year when cryptocurrencies are somehow becoming a political topic and Bitcoin is more divisive than ever before, it is becoming increasingly difficult to avoid a merciless response.
Useless search for a reason
It’s natural to ask why Assets fell sharply. In the world of stocks, there are often identifiable negative factors, such as disappointing earnings reports or sudden CEO resignations.
But in Bitcoin, there are no disappointing earnings reports or CEO departures. With no company or central authority to blame, it’s difficult to pinpoint the exact cause of short-term price fluctuations.
Of course, this doesn’t stop people from looking for reasons. Even in the Wild West of cryptocurrency, nothing happens without some kind of catalyst, but finding the why is easier said than done.
Fred Thiel, CEO of Marathon Digital Holdings (NASDAQ:MARA), laid out a number of downside factors that could currently impact Bitcoin.
Yahoo! In an interview with Finance, Thiel noted that Germany’s criminal department is selling around 50,000 bitcoins. Moreover, Mt., a Japanese Bitcoin exchange. Gox is preparing to offload a large amount of Bitcoin next month.
Thiel also observed that cryptocurrency miners continue to fund their operations and expansion by “selling a significant portion of the bitcoin they mine.” He also cited “macro expectations that are impacting risk-off assets.”
Thiel also noted that “there’s basically a lot of supply in the market,” “the hash rate is starting to fall,” and “$1.2 billion is flowing out of ETFs.” These are many problems that Bitcoin bulls need to solve.
Finally, Thiel points out another contributing factor, one that I actually agree with.
He simply said, “Bitcoin has historically been very volatile.”
Indeed, it does. Ultimately, it doesn’t matter whether the German crypto selloff, the Mt. Gox bankruptcy proceedings, or the outflow of exchange-traded funds (ETFs) is the culprit.
Whatever the major and minor causes, it is not uncommon for Bitcoin to swing 30%, 40%, or 50% in either direction. That is the nature of Wild West assets. They are wild and will shake up investors who are not emotionally prepared.
Bitcoin is digital gold, not red or blue.
In an election year, it is virtually impossible to avoid political debate between red states and blue states. At the same time, prudent investing means focusing on potential gains rather than political expectations.
Of course, it’s easier said than done. Bernstein analysts and other financial commentators sometimes tend to bicker with political experts. The best thing to do is to take their comments with a grain of salt.
Apparently, Bernstein analysts have determined that former President and current Republican presidential candidate Donald Trump is the leading cryptocurrency advocate in 2024.
If the election sentiment shifts more towards the Republican Party, cryptocurrencies will eventually become a major ‘Trump deal’ and hopes for a favorable regulatory regime will change the ‘use case’ narrative surrounding blockchain.
In contrast, TD Cowen analysts are clearly less confident that Bitcoin will be a “Trump trade” in November.
If (Trump) offers anything other than full support… This could increase anxiety that if he is re-elected, he will return to the same skeptical approach as in his first term.
Oddly enough, Thiel felt the need to speak out on the cryptocurrency candidate topic, even speaking on behalf of the former president himself in a Yahoo Finance interview.
Trump has clearly pitched himself as a Bitcoin-supporting candidate. He believes that all Bitcoin should be mined in the United States and has been very open to relationships with Bitcoin miners and people in this field.
Thiel also said, “(The) Biden administration has been very hostile to bitcoin,” which may or may not be evidence. “My concern is that some investors may be overlooking what made bitcoin attractive in the first place.”
Like gold, Bitcoin must contend with the devastating effects of oversupply and devaluation. However, unlike gold, Bitcoin often experiences sharp price declines that are difficult to explain.
So the best response is not to worry too much about explaining all price movements. If your plan is truly to HODL (hold on dear life), don’t let politics cause you to panic. Know why you’re holding Bitcoin, stick to your original plan, and don’t let a contentious election derail your long-term strategy.
