Why Is Bitcoin’s Price Falling? – Forbes Advisor – Forbes

Bitcoin, the most famous digital currency, has been on a losing streak over the past few months after reaching an all-time high of more than $63,000 in the middle of April. It fell below $30,000 on June 22 for the first time since the beginning of the year before rebounding slightly.

For the year, Bitcoin has gained about 11% as of this writing, or about what the plain-Jane S&P 500 has yielded over the same time period.

“Bitcoin prices have established and continued to test a technical support level of $30,000 since January of this year,” said Alex Reffett, co-founder of East Paces Group in Atlanta. “As more technical traders have begun day-trading the asset, today we are seeing a continuation and retest of these support levels.”

While volatility has always been part of the Bitcoin experience—the price did fall more than 80% in the year or so after late 2017—there’s more at stake this time. After all, major corporations, including Fidelity and PayPal, have invested millions to get into the crypto game. And thousands more everyday investors entered the fray after state governments imposed lockdowns and the federal government distributed stimulus checks.

There are real reasons why demand for Bitcoin has dried up, from the serious (signals of earlier-than-expected rate hikes from the Fed) to the absurd (Elon Musk’s tweets). Seasoned Bitcoin investors may intuitively know how to roll with these punches. But the Bitcoin-curious, who are just one more conversation with their crypto-enthusiast friend away from diving in, should ask themselves if they’re really prepared for the full monty.

What’s Going on with Bitcoin Now?

Bitcoin hit its all-time high in the middle of April after Coinbase, one of the biggest crypto exchanges, decided to go public.

That positive momentum followed months of positive developments for the crypto world. Tesla announced it would accept (and hold) Bitcoin, financial institutions like BNY Mellon and Fidelity made big deals out of giving their clients easier access to crypto funds, and behemoth payment processor Mastercard said it would facilitate transactions. El Salvador has even begun to accept Bitcoin as legal tender.

But the porch light can’t burn forever. Since the ides of April, Musk has soured on crypto thanks to renewed attention to its dire environmental impact while China has clamped down crypto mining in many of its regions.

The recent Colonial Pipeline hack renewed Congressional attention to how criminals use Bitcoin to extort well-heeled corporations. (These specific criminals, though, were not terribly sophisticated, and the Feds ultimately recovered much of the digital loot.)

The Federal Reserve didn’t help matters when it recently signaled in its latest Federal Open Markets Committee meeting that it was interested in raising interest rates a bit sooner than expected to stave off higher-than-desired inflation. Higher borrowing rates make speculative assets less appealing to investors, thereby reducing demand.

Another drag on desire to buy is a lack of supply: March was the last month the Fed doled out direct payments ($1,400 per eligible recipient), so many would-be buyers may have used up their ammo earlier on.

All of these developments have added to a general ennui among crypto investors.

What You Should Do

Buying Bitcoin used to be something reserved for tech-savvy first adopters, and a genre of journalism briefly rose into existence to explain to perplexed readers, many of whom still don’t know what cryptocurrency is or why it exists, how to trade dollars for Bitcoin and then trade Bitcoin for something normal, like pizza. (That pizza, it turns out, was very expensive.)

Over the years, Bitcoin has become more mainstream and easier to buy through relatively secure exchanges like Coinbase. Now, normally staid, level-headed money managers, like the folks at Minneapolis-based money management firm the Leuthold Group, make the case that a percentage point or two of your portfolio can go to Bitcoin.

The reason is clear: The high growth has been impressive. While Bitcoin today is around $33,000, that’s still a dramatic rise from its price of $9,861 this time last year.

But the price can’t keep going up at this rate forever.

“At some point the market will figure out the value of crypto and incorporate that information into a high level of price for those assets,” noted economist Tyler Cowen in a Bloomberg column. “From then on, expected rates of return will be—dare I say—normal.”

By investing in Bitcoin now, you’re expecting that the speculative craze hasn’t diminished and you’ll be able to once again sell it later on for much more than you paid. But the lesson of the last three months should be that such plans, while tantalizing, are never easy to achieve.

You never quite know when the thrill of speculatively investing will be gone.