Tesla’s U-turn on accepting Bitcoin as a mode of payment and China cracking down on initial coin offerings and banning mining and trading has led to the aggressive sell-off of crypto in the last week of September.
This steep drop in crypto prices has compelled investors and crypto enthusiasts to ask the question- why is the crypto market crashing?
Let’s answer the burning question of why is crypto crashing today, analyze its causes, and look at the possible impact of this crash on crypto investors and those who were planning to invest.
Recent Trends Of Cryptocurrency Volatility
The Bitcoin market functions 24 hours a day, and the dramatic volatility of the crypto market is not new for crypto investors. In the last three years, the average daily Bitcoin volatility has been 75%, which is much higher than S&P’s average of 22%. Thus, it can be seen that crypto market prices fluctuate four times more than the stock market.
Additionally, the recent nosedive in the value of Bitcoin has made investors and crypto traders anxious about the future. Naturally, it is inevitable to think about- why is the crypto market crashing, and what impact it can have on current and future investors.
Following the above-mentioned events, Bitcoin prices dropped 6% to below $42,000, while Ether fell about 8% to around $2,800 before steadily rising in the days after.
Impact Of Crypto Crash For Investors
As an investor, it is tough to get a good night’s sleep knowing the volatility of the crypto market. Various market analysts and financial experts have been putting forward their opinion on the recent drop in the crypto market, specifically Bitcoin.
Humphrey Yang, a personal finance guru, opines that it is best for long-term investors to not overly examine one’s account especially when the market drops.
The experts at Token Metrics recommend that crypto investments should only make up less than 5% of your investment portfolio because the swings will continue to happen.
Invest and forget: the oldest trick in the crypto books is what Yang suggests when it comes to staying in the game for the long run. Your crypto investment must not get in the way of your prioritized financial goals, and you must put in whatever you’re willing to lose.
But what if the see-sawing of Bitcoin value bothers you? There’s an alternative to that as well. If the price fluctuations of the crypto market feel bothersome, it is wise to diversify through crypto-related equities and blockchain funds rather than investing in crypto directly.
Investing In Crypto Now
Many cryptocurrency experts believe that the invest and forget strategy might be a little too risky as an investment approach and is more aligned with traditional stock market trading.
This is the reason A’Shira Nelson of Savvy Girl Money prefers investing in low-cost index funds because, as she puts it, “I can see history on that”. The reason being that cryptocurrency is relatively new and lacks traceable data and historical analogies.
If you’re planning to invest in cryptocurrency considering the relatively low prices, you must also note that the prices can go even further down. So the best thing you can do now is to invest in crypto only after you’ve taken care of your financial priorities, such as emergency funds and retirement funds.
Behind The Scenes Of The Lastest Bitcoin Crash
The expert team at Token Metrics state that the recent crash of Bitcoin for the second time in 2021 is comparable to the 2017 Bitcoin drop. Even though fluctuations are a part of the crypto market, many finance gurus suggest that the cause for this year’s drop might be a bit out of the ordinary.
According to Chief Technical Analyst, Bill Noble, this particular decline was driven by several reasons. From talks about low-quality coins to Elon Musk’s remarks and China’s new restrictions on cryptocurrency services, all collectively led to the drop in crypto.
The Bottom Line
Apart from the Chinese backing off, Elon Musk’s influence in the crypto market cannot be ignored. Even though it is a known fact that the crypto market is very volatile, this recent drop was unexpected by most financial experts.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide tax, legal or financial advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.