Bitcoin took the world by a storm. It seemed as though the cryptocurrency would never have any issues as it recorded a seemingly steady increase in value. Then came 2018 when the world experienced a significant cryptocurrency crash, setting off most cryptos. The unprecedented crash happened just a year after a 2017 boom and saw Bitcoin lose 65% of its value.
Bitcoin may be a gold-level cryptocurrency, but the idea of bitcoin investing is not yet fully adopted. As the market makes changes regarding the concept, so does prices. Hence the high volatility witnessed. This begs a crucial question, is it safe to invest in Bitcoin in 2020?
In this guide, we seek to deliver some key information that will tackle your queries. To head in the right direction, let’s start by looking into the behavior of the 2018 Bitcoin crash.
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The 2018 Bitcoin Crash Explained
The year 2018 was the worst in the history of Bitcoin and other cryptocurrencies for that matter. Referred to as the Great Crypto Crash or Bitcoin Crash, there was a significant sell-off of most cryptos starting January 2018 to February 2018.
Consequently, Bitcoin prices declined by 65% within the mentioned period. By September of the same year, the value of cryptocurrencies had reduced by more than 80%. Bitcoin lost more than one-third of its value at this time and continued to fall.
The crash was ironic in that just the previous year (2017), Bitcoin had grown by 2,700%, and in 2016, the growth had been higher. The previous seemingly unending rise had attracted the attention of famous investors, economists, and finance professionals who warned that a bubble was on its way.
By December 2017, Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE) made a major decision to list Bitcoin futures. Doing so made it possible for mainstream investors to short Bitcoin on a large scale. Institutional investors got to access Bitcoin prices without really purchasing the actual Bitcoin. A significant drop in the price of the actual Bitcoin was recorded.
Here is a breakdown of the flow of events:
- 17 December (2017) – Bitcoin prices hit an all-time high of $19, 783.06
- 22 December (2017) – Prices fall by 45% to below $11,000
- 6 January (2018) – Bitcoin gets a high of $17,252 which is lower than previous years
- 12 January (2018) – Rumors of South Korea planning to ban Bitcoin lose the crypto 12% of its value
- 16 January (2018) – Bitconnect is suspected of fraudulent activities and issued with a cease and desist order, forcing it to shut down its bitcoin exchange.
- 26 January (2018) – Coincheck is hacked and $530 million stolen. This was the single largest attack on a cryptocurrency OTC market and forced Coincheck to suspend operations.
- 26 January – 6 February – Bitcoin prices halved to stand at $6,000 and remain so for the first half of the year.
- 26 November (2018) – Continued negative news makes Bitcoin prices to fall below $4000.
From the events in 2018, it is evident that negative news in the crypto markets was the overall contributor to falling Bitcoin prices.
Come 2020, a time when the COVID-19 has put the world to a standstill, one wonders whether Bitcoin is also headed in the same direction this year. And if so, would it still be wise to invest in the crypto?
As they say, numbers don’t lie. A look into the Bitcoin stats for the year 2020 should guide in making the right decision.
Bitcoin 2020 Key Stats
The chart above, sourced from Coin Desk, paints the picture of increasing value from January 2020, which then hit a major downfall in Mid-March. The declined value in March came at around the same time the world was under the COVID-19 panic. As can be seen, the prices again start to pick up in Mid-April, probably after the world learned a little bit of information about the pandemic.
Lately, Bitcoin rallied sharply in the weeks after the impending halving event (which happened on 11 May). However, previous data support expert analyses that the crypto incur a temporal price pullback.
During the last ten days of April, Bitcoin jumped from $6,700 to $9,400. The cryptocurrency continued to enjoy a favorable time in May, gaining more than 15% and recording a 7-week winning streak.
Before the halving event, significant gains were recorded and continued to register past the set date.
As such, your worries as to whether or not you should invest in Bitcoin in 2020 seem futile. You could as well safely proceed to create your Bitcoin account and Bitcoin wallet to get started.
The Halving Event
Bitcoin halving event happened on 11 May 2020. By default, Bitcoin is programmed to cut by half the award given to miners for every 210,000 blocks mined or after every four years. In so doing, the rate at which new bitcoins are released into circulation is cut by half. Hence the name Halving event.
The system is designed to go on until around 2140. By this time, network users will pay a fee for using the network, and a part of this will go to miners for verifying transactions. The fees are set so that miners are incentivized to mine and keep the network in operation. Competition for the fees is championed to ensures charges for using Bitcoin will remain low.
Due to the recent halving event, 2020 remains to be a lucrative time to invest. As the market still adjusts itself to changes, a wiser investor would capitalize on it for profit.
If you intend to invest in bitcoin through active trading, you are best positioned to do so in short periods. Keeping the time from buying to selling short mitigates the risks associated with waiting for a long time before selling.
You could also be interested in investing through storing the bitcoins. That would be a smart move as it underscores the overall essence of bitcoin – value storage. Just be sure to choose a good Bitcoin Wallet for the storage.
Causes Bitcoin Price Volatility
One of the things that you are sure to be concerned about as you think about investing in Bitcoin is the regular and sometimes unprecedented price fluctuations. Several factors drive these fluctuations.
1. Bad news hit Bitcoin bad.
If there is one thing that Bitcoin investors dread, it has to be bad news. The value of this cryptocurrency is based on people’s good faith and willingness to adopt a better alternative to fiat currency.
Bitcoin users are scared by news events, including statements by governments and geopolitical events. A slight hint from the government that crypto could become regulated sends shockwaves throughout the network in a negative manner.
There have been major headlines throughout cryptocurrency history, which have proven just how powerful negative sentiments can hurt it. Some of these include the bankruptcy of Mt. Gox and Yapian Youbit, a South Korean bitcoin exchange. News such as the use of Bitcoin in drug-trafficking via Silk Road also had an unfavorable impact on the crypto users.
A common factor recorded in these negative events is that the price always drives back up after a shortfall. That is attributed to the fact that experts translate these events to mean the market is maturing up for Bitcoin.
2. Uncertainty in future value
Even as we use Bitcoin today, we are always speculating what might happen in the near and unforeseen future. The market’s perceptions of Bitcoin’s future intrinsic value as a store of value contributes to its volatility.
An asset that can store value implies that it is useful in the future. That would imply that you can save it and use it in the future to exchange for a good or service.
There is no doubt that Bitcoin has had unstable fluctuations over the years since its introduction. As such, many are not sure how the crypto would hold in the future. The uncertainty in its use as a store of value for future use makes Bitcoin face further fluctuations.
3. Security breaches
Bitcoin’s operations are based on the Internet, where a lot of hacking operations take place. Malicious hackers are known for exploiting any security vulnerability in exchanges for their selfish gains. When such incidences take place, bitcoin users become paranoid and unaware of what would befall them.
Hacks are also blamed for driving leading exchanges out of the market, badly hurting the overall network. For instance, Yapian Youbit ran into bankruptcy as a result of a hack.
4. Fear due to high-profile losses
Theft cases and ensuing news regarding losses have had a double effect on the volatility of Bitcoin. The overall bitcoin float is reduced, thereby causing a lift on the value of remaining coins as a result of scarcity. However, this lift is quickly overtaken by the negativity that follows after the news leaks out.
Conclusion
The question regarding whether or not it is advisable to invest in Bitcoin in 2020 does not have a straightforward answer. However, by looking at existing data, we can have ideas on how best to proceed. Statistical data shows that Bitcoin has been experiencing fluctuations over the years since its introduction. However, new events end up off-setting damning events.
