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Bitcoin — and the larger crypto market — fell in the final months of 2022 following the crash of crypto exchanges FTX and FTX.US. On Nov. 11, 2022, both exchanges filed for Chapter 11 bankruptcy. And because FTX had invested in so many crypto-related companies and cryptocurrencies, its collapse was felt across the entire industry.
While Bitcoin has a history of bouncing back after crashes, recoveries have proven to take months or even years. And although Bitcoin officially recovered all of its post-FTX crash losses by mid-January 2023, it remains a highly volatile asset, and the fallout from the FTX crash is ongoing. Crypto exchange BlockFi, which had received a line of credit from FTX.US and was set to be acquired by it, filed for bankruptcy on Nov. 28. And Gemini is still working to recover assets that were held in its Gemini Earn program, which have been frozen since Nov. 2022.
If you're worried about keeping your crypto with an exchange, consider moving your digital assets to a separate crypto wallet. Most exchanges allow you to transfer assets to these wallets, which can be online (on a separate platform) or offline (on a thumb drive with added security features).
In general, what factors could cause Bitcoin to go up?
Looking ahead, there are a handful of factors that could cause demand for crypto to rise:
A crash turns out to be more limited in scope than initially thought. Because so many crypto-related companies are financially entangled through investments and acquisitions, one exchange crash can trigger other companies and currencies to fall like dominoes. If, however, it appears the dust has settled on the FTX collapse, and investors once again pile into the speculative asset, prices could rise. Inversely, if new details emerge regarding the FTX collapse, or if another popular exchange runs into similar issues, that could limit price growth.
Lower interest rates. The price of riskier investments tends to rise with lower rates. Currently, the federal funds rate is higher than it's been for more than 10 years and rising as the Federal Reserve tries to beat back inflation. However, when Silicon Valley Bank suddenly collapsed on March 10, 2023, it called into question whether the Fed will continue to raise rates as aggressively as it had been — or at all.
Reduced threats of inflation and economic recession. If the Federal Reserve is successful in reducing inflation through raising interest rates, investors might have more appetite for investing in risky assets such as Bitcoin.
Big investors getting into crypto investing (such as pension funds). Large purchases can nudge prices up.
The SVB collapse
In the days following the collapse of Silicon Valley Bank, or SVB, Bitcoin's price surged from around $20,000 to more than $24,000. Why? Because to many Bitcoin enthusiasts, this was exactly the kind of problem Bitcoin was invented to solve. Had SVB depositors put their funds in Bitcoin, the argument went, they would have retained full control of their money. This price surge suggests that when issues within traditional finance arise, there's a cohort of bulls who believe Bitcoin is the solution. And when investors are piling in, the price could potentially go up.
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Bitcoin price predictions: All over the map
Bitcoin is the oldest and most valuable cryptocurrency and is often used as a proxy for the price of cryptocurrencies. As a result, there's a lot of speculation about where the price will head next.
You can find a wide range of predictions on crypto blogs, Twitter accounts and YouTube pages. But you won't see many professional analysts setting price targets like they do for stocks. It's just too hard: J.P. Morgan's research from 2021 showed that Bitcoin is roughly five times more volatile than equities or gold and has "little to no correlation with other major financial assets."
Those who believe in cryptocurrency's long-term potential might say the question is not if prices will rise again but when. And "when" can mean many different things. For example, Bitcoin could come back as furious as it did in 2021, or it could be a multi-year recovery, such as after a drop in 2013.
It's also possible that prices could continue to go down rather than back up. The latest crypto winter passed the one-year mark, and a drumbeat of bad news throughout 2022, including the sudden fall of exchanges FTX and FTX.US, dampened hopes of an upswing. Even after a strong start to 2023, uncertainty following the turmoil of late-2022 could send prices downward again.
How to respond to a crypto downturn
"In some ways, the volatility in crypto can accrue to the benefit of savvy investors," says Greg King, founder and CEO of Osprey Funds, a crypto investment firm. "It offers investors great opportunities to buy dips, tax-loss harvest and dollar-cost average."
The strategies King referred to are available to anyone. Buying the dip means viewing price slides as opportunities, if you believe the price will rise again eventually. Tax-loss harvesting is a way to lower your tax bill by selling off investments for a loss, and dollar-cost averaging means buying regular amounts of an investment at regular intervals.
These strategies for investing in crypto in a down market rely on forming a plan, executing it and sticking with it over time.
The author did not have positions in Bitcoin at the time of publication. The editor owned Bitcoin at the time of publication.
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