How do you feel about this recent pullback in the Bitcoin price? We’re 50% off the all time high of $69,010! What happened? Is Bitcoin going to zero? Is it dead? The answer is no. It’s called volatility and it works both ways, up and down. Funny fact is absolutely nothing has changed with Bitcoin, it is just our human emotional response to the price dropping. It doesn’t feel good and everyone wants to get rich overnight but that’s not how this works. Instead you should be rejoicing at the opportunity to get your hands on cheaper Bitcoin but every bone in our body tells us that THIS SUCKS! How can you buy it now? What if it drops further? We have talked about dollar cost averaging by buying every week or every month - keep doing that. When prices drop like this it is a good opportunity to spend a little extra and really lower your cost basis. This moment is why you worked an extra shift or got those TPS reports done on a Saturday. Don’t let it go to waste!
It is still scary to buy after a big drop thinking it’ll keep falling but you’ll never catch the exact bottom so they say to buy along the way. And honestly if this is really stressing you out you may need to reconsider your position size or your time horizon. I NEVER plan on selling Bitcoin and I’ve gotten used to the volatility so to me and many others this is just noise.
When I say that nothing has changed with Bitcoin, I mean it. It is just math and code. Bitcoin doesn’t have emotions and that’s the beautiful thing about it. Can you imagine if a monetary system was affected by the drastic swings in human emotions like greed, fear, and euphoria….. it might look something like our current system. *insert laughing emoji*
Bitcoin continues to produce block after block full of transactions. The issuance rate of new Bitcoin and the max supply hasn’t been affected one bit. Ironically the computational power being directed toward the network (hashrate) hit an all time high this past week. This tells you everything you need to know. The miners are putting forth real capital expenditure to secure the network at an ever increasing rate. The incentives to mine Bitcoin remain strong and as long as this is the case I find it very hard to discredit Bitcoin just because the price is hyper volatile. The volatility is the whole world in real time trying to assign value to the hardest money the world has ever seen.
The real driver of this price drop I believe is more related to the macro economic landscape that we currently find ourselves in. The Federal Reserve is who controls our monetary policy which consists of 7 unelected old white men. The history of the fed is quite fascinating but we can save that for another time. They have a dual-mandate which consists of stable prices and maximum employment. They achieve this through various manners but primarily through adjusting interest rates which have been at ZERO for the better part of the last 14 years. Try and stay with me here - what does this mean? It means borrowing money is historically cheap and can allow credit to expand. The expansion of credit (debt) is the illusion of growth and shows up in the U.S. GDP (economic growth) numbers under consumer spending. Since 2008 the U.S. economy has “grown” by $6T! That sounds great but it took $18T of debt to achieve that. What would that “growth” look like without all the cheap debt? It wouldn’t exist and that is why it is referred to as the illusion of growth.
Back to how this is affecting Bitcoin and all assets for that matter. The Federal Reserves mandate of stable prices is not working with inflation at 40 year highs. The way they combat this is by raising interest rates. This is where they are caught between a rock and a hard place. If they raise interest rates it makes all this cheap money much harder to afford and they risk popping the largest equity bubble the world has ever seen. On the other hand, if they don’t raise interest rates they let inflation run hot and destroy the economy. What a lot of people don’t know is that the Fed is actively still printing money on a monthly basis and it can’t raise interest rates until it stops doing this which is scheduled to end in March. So in short this downturn in everything is just from talking about raising interest rates! Talk about fragile. Give me some more Bitcoin please! Note the downturn in a lot of things, specifically tech, not just Bitcoin. I hope this can help bring a little clarity to the current situation.