Is Bitcoin a good investment? Analysis of this week’s bitcoin’s technical drop

B2-iSH-O²

B2-iSH-O²

Published on 25 February at 19:00 PM

The drop of the king of digital currencies (or virtual currencies), bitcoin, in recent days is very good news for investors. I will add that this is a good time to invest in Bitcoin. Before going into the why and how of this week’s events, we can already draw some conclusions

Two lessons to be drawn from this episode, which shows us that the bitcoin has matured:

  • The $45-50,000 threshold seems to have become the threshold resistance of this crypto currency. For individual traders and investors, this is a sign that bitcoin is stronger today than it was a year ago.
  • The drop in the last 48 hours is certainly important in terms of absolute value, but in terms of relative worth (%), it is only a 15% drop after rising up constantly. We are far from the -32% from January 2021 or the -85% from 2017. Another sign that this cryptocurrency is becoming more stable.

With this episode, bitcoin shows that a new level has been reached and that the next step could be, reaching the $100 000 in the near future, bringing with him other cryptocurrencies such as Ethereum, Ripple, Bitcoincash, Dogecoin etc.

The high volatility of recent days shouldn’t scare off any potential future investors. They are the result of a still minor total capitalization of bitcoin. Trading amateurs know that this means very strong ups and downs. As a reminder, with a cumulative value (the equivalent of a market capitalization) of $1 billion (or €800 million if you use a dollar/euro converter), the king of cryptocurrency, bitcoin, is still a dwarf in the game of world trading. In fact, it only represents 10% of the value of gold and a drop in the ocean if we take into account the daily financial exchanges of the world stock exchanges.

Now, let’s go back to the context that has dictated the last few weeks.

Several weeks marked by a surge in the price of BTC:
During the last few weeks, the rise of cryptocurrency seemed unstoppable. In the economy or simply in the world of trade, if this period of constant progression is too long, it is often a sign of the explosion of an economic bubble. This is why this week’s correction is more than just good news.

How did we get here?
This rise is the result of the correlation of several factors:

  • Renowned influencers such as Elon Musk, Cathie Wood or Dan Ives, to cite only a few, have been raving about bitcoin and several other cryptocurrencies. This has attracted the attention of new buyers.

  • Big international groups, listed on the stock exchange, have decided to integrate the BTC, but also to a lesser extent the Ethereum, Ripple or AVVE, in their financial reserve. This is a clear sign given to investors and has attracted other big players. For example, Tesla and MicroStrategy, who have invested billions in digital assets. Needless to say, central banks do not look favorably on these maneuvers.
  • Finally, overseas, several investors (particulars) through different plans to support the economy due to Covid 19, have received cash from the government. Some of them have built up reserves that they have chosen to place either on the financial market (hence the rise of the Nasdaq) or on virtual currencies. This has had a visible impact. As a reminder, French savers preferred their deposits on the livret A (remunerated at 0.5% per year) while many Americans made huge profits by going to the markets.

These three factors combined have increased the pressure to buy crypto currencies.

Sellers on standby
The phenomena is well known, a surge on the price spread over time, does not encourage sellers to sell their goods. Why sell today, if in ten days, the selling price will have increased by 10%. Unless you are forced to do so, most sellers will be on standby while the prices continue to rise. Then we will be witnessing a drop in the number of transactions.

The combination of pressure from buyers and the expectations from sellers could in theory generate a very dangerous spiral unless something happened to stop these mechanisms.

Elon Musk whistles the end of recess with a single tweet.
Elon Musk, the president of Tesla (company listed on the stock exchange), who has significant exposure to bitcoin, anticipated the risk and dangers of an upward spiral. On Sunday, he only had to post a brief message on his twitter account to stabilize the situation.

By stating that he thought that the price of bitcoin was too high, he almost instantly restored the balance between buyers and sellers (fewer buyers/more sellers).

Stabilizing at around $45 and $50,000… Could the next step be $100 000?
The ups and downs of the past few days are the normal result of a search for balance between buyers and sellers and should not be of concern to future investors. On the contrary, the fact that the start of digital currencies is stabilizing at $50,000 shows its maturity. For most analysts or investors, and I agree with it, the next step will be reaching the $100,000. Now, when will this happen?… Maybe before the end of 2021?

In conclusion…
For the undecided, those who need more information before investing in bitcoin, you should know that it is not too late to buy some. The outlook for medium and long term returns is really attractive and much better than any other financial product offered by traditional banks. In addition, for trading enthusiasts or professional traders, the transactions between the different crypto currencies could prove to be an attractive investment.

Do not hesitate to follow the evolution of digital assets on the Union Btc blog.

Union Btc is a regulated cryptocurrency exchange platform. We advise individuals who want to invest in bitcoin or on any other virtual currency. In addition, our trading experts can advise you on how to make transactions between cryptocurrencies in order to generate capital gains.

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