Your Survival Guy is not in the predictions business. Trying to calculate what someone else will pay for an asset at a future date is something best left to oracles and seers. Buying something and hoping someone else will buy it at a higher price is speculation, not investing.
But you’re asking me about Bitcoin, so I’m watching it, though not with the intention of buying. I like the blockchain technology that underlies cryptocurrencies, but am wary of the currencies themselves. Here’s what Patricia Kowsmann wrote about the recent plunge in bitcoin prices in The Wall Street Journal:
Bitcoin and other cryptocurrencies had a roller-coaster weekend, another sign that investors are pulling back from riskier bets after last week’s stock-market selloff.
Bitcoin, the largest cryptocurrency by market value, plunged more than 20% to $42,000 at midnight Eastern Time on Saturday before bouncing back somewhat, according to data from CoinDesk. It was trading around $49,200 on Sunday evening, still down about 8% since late Friday and down about 14% since the start of the month.
The declines were widespread across the cryptouniverse. Other widely traded cryptocurrencies including Solana, Dogecoin and Shiba Inu coin at one point lost more than one-fifth of their value.
Ether, the second-largest cryptocurrency, also tumbled late Friday, but had erased nearly all of that loss by Sunday.
Bitcoin and other cryptocurrencies are notoriously volatile and often plunge for mysterious reasons. Disquiet in the stock market over the new Omicron variant of Covid-19 and the Federal Reserve’s response to inflation might have played a role.
Another possible factor accelerating the bitcoin selloff was the unwinding of heavily leveraged crypto derivatives, said Noelle Acheson, head of market insights at cryptolender Genesis Global Trading. She pointed to a large sell order that might have triggered margin calls and liquidations for investors.
Leveraged trading of cryptocurrency derivatives has become a huge business for exchanges such as Binance, the world’s largest. Traders use future contracts to bet on the rise or fall of a specific cryptocurrency. To make returns more attractive, they are allowed to make oversize bets with little money. When the price of cryptocurrencies falls precipitously, margin calls force investors to liquidate.
Action Line: Whether the next stop for bitcoin prices is the moon or the basement, I want you to focus on building a solid investment plan for your family. If you need help, I would love to talk with you.
E.J. Smith - Your Survival Guy
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