The world of cryptocurrencies is looking anxious as Bitcoin tumbled to just under $77,000 (£60,000) yesterday, before recovering to more than $81,000.
The digital currency has fallen by more than a quarter in value since a high of $106,000 (£82,000) in January, even in spite of a jump to $90,000 last week when US President Donald Trump signed an executive order to establish a strategic Bitcoin reserve, giving his official seal of approval to digital currencies.
Why is the market looking nervous?
At the start of the year investors’ confidence was riding high as Trump proclaimed he wanted the US to become ‘the crypto capital of the world’.
But Glen Goodman, author of The Crypto Trader, says: ‘Trump launched his own coin in January – as did his wife Melania.
‘Some people made an awful lot of money in the first few minutes of its launch, but the majority did not. After initial excitement the market felt let down – and this has added to a negative sentiment that has affected the market.’
Crypto crash: Bitcoin has fallen by more than a quarter in value since a high of $106,000 in January, even in spite of a jump to $90,000 last week
Chris Beauchamp, an analyst at IG Markets, says: ‘Talk of crypto reserves got the market excited – it provides a veneer of respectability to initially boost values.
‘But the fall-off in prices indicates uncertainty over what will actually happen.’
Should you choose Bitcoin over others?
The biggest surprise to investors was that alternatives to Bitcoin will be in the federal reserve.
Ethereum, Solana, Cardano and XRP initially soared – with Bitcoin up more than 10 per cent. Ethereum and XRP were up 11 per cent, Solana surged by 25 per cent, Cardano by more than 60 per cent.
Now values have tumbled so most are lower than before the announcement: Bitcoin fell the week after to 13 per cent, Ethereum by 16 per cent, XRP 21 per cent, Solana down 25 per cent, while Cardano dipped 30 per cent.
Beauchamp says: ‘There is a sense that the inclusion of other cryptos indicates people with outside interests are whispering in Trump’s ear.
‘Having a seal of approval from the President does not necessarily spell good news. The less well-known cryptos are far more illiquid – not so easy to trade.’
Is the crypto fall a buying opportunity?
‘Buying at such a time of volatility, when Bitcoin has recently been going downwards, is a bit like trying to catch a falling knife,’ says Goodman.
Having sold half his crypto holding at the end of last year, when Bitcoin first broke through the $100,000 barrier, Goodman says value may fall by two-thirds in 2025.
He follows the trading strategy of ‘rinse and repeat’ – buying when prices start rising and selling when going down. He says it’s key to be aware of getting it spectacularly wrong.
Goodman adds: ‘It could be hell over the next few weeks and months, as people realise making money in this market is not easy.
My understanding is that Trump is going to use taxpayers’ money to buy tokens from crypto investors in the hope it will boost the market.’
How should I put money into crypto?
Beauchamp says: ‘Would-be investors should drip-feed small amounts of money to understand what is going on in the crypto market. If you are thinking of putting in £500, consider putting in £100 now and see how it fares.’
Beauchamp believes that for people who purchased crypto on a wave of excitement when Bitcoin smashed through the $100,000 barrier late last year, this will be the first time they will have realised they can lose money.
In November 2021, Bitcoin was at almost $65,000. It then crashed the following year to $16,000 before climbing again. If a similar pattern was to repeat, Bitcoin could fall to $25,000 in value by the end of the year.
How can I know when to trade?
Three-quarters of the 20million Bitcoins in existence are held by long-term buyers. Beauchamp says: ‘This group is known as “hodlers” – which stands for “hold on for dear life”. They might feel sick when markets fall, but over time patience has paid off.’
Danny Scott, chief executive of crypto trading platform CoinCorner, says: ‘As far as strategies for predicting the next dip or rise in value are concerned for when to put in money, there is no point losing sleep about whether the price goes up or down in the short term.’
How can I get involved in trading?
The best way to obtain Bitcoin is through an online trader such as eToro or CoinCorner. You can buy using a debit or credit card.
You do not have to buy a full Bitcoin but can purchase in fractions that are as small as a ‘Satoshi’ – one hundred-millionth of a Bitcoin. In return for the purchase, you get a unique code that is proof you own Bitcoin. Do not lose this.
The currency is stored in a ‘virtual wallet’ where it can be viewed and traded.
Buying and selling is trading, not investing, as there is a risk you could lose your money. You have no consumer protection if something goes wrong or if the value of a holding plummets.
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