Will Bitcoin Rise Again?

Bitcoin's price is inching toward $29,000 Wednesday, down nearly 4% over the past 24 hours, as stock and crypto markets struggle to recover from multiple weeks of losses.

Several factors — such as rising inflation, geopolitical crises, and shifting U.S. monetary policy — continue to drive extra short-term volatility to the crypto and stock marktes. The crypto market has increasingly tracked the stock market in recent months, which makes it even more intertwined with global economic factors.

“Like all risk assets, crypto prices this year have been disproportionately driven by the war in Ukraine, inflation, and the outlook on Fed Policy (particularly the taper schedule),” says Ben McMillan, CIO at IDX Digital Assets. “So while we’re seeing crypto prices at relatively attractive prices on a longer-term outlook, there could still be considerable downside in the near-term.”

The Fed raised interest rates May 4 by 0.50%, the largest move since 2000, in an effort to combat inflation. The Fed also detailed plans on unwinding its nearly $9 trillion balance sheet starting in June. The April consumer price index, which measures changes in the cost of food, housing, gasoline, utilities, and other goods, remained at 8.3% from a year ago. The war in Ukraine also continues to contribute to increased market volatility.

TerraUSD (UST), one of the largest stablecoins, likely played a part in the Bitcoin crash last week, according to some experts. Stablecoins are intended to bring stability to the crypto markets and should hold as close to $1 as possible, but UST sank below 12 cents as investors panicked and sold off their coins. The Terra blockchain officially halted last week.

Bitcoin’s high point of the year so far remains in the earliest days of January, when it nearly hit $48,000 on Jan. 2. So far, it has stayed above its late January low point below $34,000, which was the lowest it had been in the previous 6 months. Bitcoin has lost 40% of its value since it’s Nov. 10 all-time high above $68,000. While Bitcoin's price has seen multiple big drops since November, its new highs in 2021 and current price are still an impressive feat considering its humble beginnings and a price below $10,000 as recently as July 2020. Ethereum — the next most popular crypto — notched another new all-time high of its own when it went above $4,800 in November.

Though Bitcoin and Ethereum have both had ups and downs short of their all-time highs since then, many experts still expect Bitcoin's price to exceed $100,000at some point.

The volatility highlights a durable truth for Bitcoin: it is still a highly volatile and speculative investment. In fact, the last time the original cryptocurrency set a record high in mid-April, it abruptly lost over half of its value and plunged to around $30,000 by mid-July. Similarly, Bitcoin dropped back below $35,000 this month not long after its most recent November high.

So what should crypto investors do in light of this volatility? Nothing, according to the experts we’ve talked to. Given the crypto’s history of volatility, this increase doesn’t guarantee a long-term reversal. Bitcoin’s price is just as likely to fall back down as it is to continue climbing. The future of cryptocurrency is sure to include plenty more volatility, and experts say that’s something long-term crypto investors will have to continue dealing with.

What Investors Should Know 

If you’re investing in cryptocurrency, expect volatility to continue. That’s why experts recommend keeping your crypto investments to less than 5% of your total portfolio.

“I know these things are super volatile, like some days they can go down 80%,” Humphrey Yang, the personal finance expert behind Humphrey Talks, previously told NextAdvisor. “But if you believe in the long-term potential of [Bitcoin], just don’t check on it. That’s the best thing you can do.” 

Just like you shouldn’t let a price drop influence your decision to buy crypto, don’t let a sudden price increase alter your long-term investment strategy. Even more importantly, don’t start buying more crypto just because the price is rising. Always make sure your financial bases are covered — from your retirement accounts to emergency savings — before putting any extra cash into a speculative asset like Bitcoin.

Bitcoin’s latest big jump also isn’t anything new. “While in the long-term Bitcoin’s price has generally gone up, we experience a lot of volatility along the way,” says Kiana Danial, founder of Invest Diva.