The recent dip in the price of Bitcoin and other cryptocurrencies has taken things back to normal. We’re once again seeing articles and press coverage about how Bitcoin was always unstable, and how this was inevitable. People are again saying that cryptocurrencies are just ‘digital bits’ that don’t really matter, as if cash isn’t just bits of paper! Well, we guess the 3 months where people took cryptocurrencies seriously are all us enthusiasts get.
The worst part is that most people do not understand why Bitcoin is going down in price – the same way they didn’t understand why it was going up. This leads to even some very smart financial analysts saying some absurd things like Bitcoin is crashing because it has no inherent value. The real reason for Bitcoin’s dip is the same as that of its rise – inexperienced traders who are now panicking.
Why this was inevitable
This wasn’t a dip in price, this was a price correction. Here’s what happened. As bitcoin and other cryptocurrencies started gaining value the smart investors jumped in. They knew it would go up. This is from before Bitcoin crossed $10,000. People knew it would go further up so they put their money in it. As it kept going up and up, the smart investors knew they shouldn’t invest more – the price had gone up too high.
Inexperienced traders, however, saw the price go up to $19,000 and they started salivating at the prospect of making more money through cryptocurrencies. The most important thing to understand here is that anyone who had any idea about cryptocurrency trading had already bought in at this point. The people who poured in after them were just people who knew nothing about cryptocurrency or trading, and were just trying to make a quick buck.
Every asset loses value one time or the other. Dips in price are common in stocks, securities – basically anything that is traded. The reason the price of Bitcoin has dipped more severely is due to the inexperienced traders. Most of the money that helped bitcoin balloon from $10,000 to $19,000 belonged to inexperienced traders.
Smart investors knew that the price would dip a bit. New investors had no idea. The moment the price started going down these people started panicking. Many of them had bought in at $19,000, and the price went below that very quickly. In the panic every person who had bought in too late started trying to sell, and any investor will be able to tell you that when everyone is trying to sell prices go down. That is how the market works.
Want proof that this happened? Just look at the price of Bitcoin right now. Notice how it dipped very fast but the dip keeps slowing down as the price goes down. That’s because the dip was happening because of people who had bought Bitcoin at too high a price and are now selling. Smart investors are still making a profit, and many of them think this is the best time to buy Bitcoin.