How to avoid one of the greatest dangers when investing in cryptocurrencies

By Njoku SaintJerry A.

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“If you are new in the business of the Blockchain technology or nursing an ambition to explore your chances on investment in this area then you have every need to spare your attention on this straight from the vine crass lecture”

If you are new in the business of the Blockchain technology or nursing an ambition to explore your chances on investment in this area then you have every need to spare your attention on this straight from the vine crass lecture culled from Sunny Patricia.

Bitcoin and other cryptocurrencies have fallen sharply in price from the highs they reached just a few weeks ago. Bitcoin reached an all-time high near $65,000 in mid-April and $67,000 recently.

For Bitcoin newcomers, this crypto crash is probably pretty scary. However, this drop isn’t surprising to those who know Bitcoin’s history. Here are a couple of things you need to know to put the current dip into perspective.

1. Bitcoin has crashed before
Today’s crypto crash is nothing new. Bitcoin has crashed 80% or more three different times since 2012. In this context, we see that the current 41% drop is rather mild by comparison.

With Bitcoin, demand is hard to predict. But past crashes occurred when long-term utility was called into question. For example, Bitcoin had a sharp pullback when China first announced restrictions on cryptocurrencies in 2017.

Similarly, the current crash is being helped along by new clarifications from China – its citizens can’t use it as a form of payment. From time to time, other countries propose similar limitations on cryptocurrencies as well.

Whenever something puts Bitcoin’s long-term future in doubt, demand is temporarily stifled and a crash ensues. And if the current crash follows the historical pattern — a drop of 80% or more – Bitcoin still has a long way to fall from where it is right now. From its previous high, an 80% drop would take Bitcoin down to around $13,000.

2. Bitcoin has always bounced back
According to its protocol, Bitcoin’s supply is fixed at 21 million coins. There are currently around 18.5 million already in existence. But new Bitcoins are “mined” and put in circulation on a continual basis. Right now, there are about 900 new Bitcoins released every day as new blocks are mined.

However, every four years, the Bitcoin reward for mining is cut in half. This is called a “halving event.” At launch, miners were awarded 50 Bitcoins with each new block. But there have now been three halving events, taking the current reward down to 6.25 Bitcoin per block. Previous halving events occurred on Nov. 28, 2012; July 9, 2016; and May 11, 2020.

No one knows the future, so no one can say whether Bitcoin is going up or down in the near term. However, I would say the odds are high that the price of Bitcoin will be higher following the next halving event, which is expected in 2024. Halvings have tended to be catalysts in the past.

A final warning
Unfortunately, most people aren’t thinking long-term when it comes to Bitcoin. It is been widely reported that the recent crash caused $8 billion in forced liquidations on May 19 alone because investors had purchased Bitcoin using Margin.

Paying for any investment with borrowed money is a bad idea — especially one with a history of wild volatility. If it goes up, margin can admittedly compound your gains. But the opposite is true as well.

If Bitcoin’s history teaches us anything, it is to expect the unexpected. If you’re willing to hold a small position for the long term as part of a diversified portfolio, then I would say buy some Bitcoin. But don’t buy today hoping to get rich quick. History shows there’ll be sharp and lengthy setbacks along the way.

As the caution goes, please take note, This is not a piece of financial advice.

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