Reasons for the recent volatility of cryptocurrencies? And how to deal with it

The cryptocurrency markets have witnessed great volatility over the past weeks, as the value of most major and major currencies fell affected by the US Federal Reserve's decisions to raise interest rates, which in turn was the result of the wave of recession and inflation that the world is witnessing.

In a report for The Independent, writer Hamish McRae said that the past weeks have been tough for anyone who owns Bitcoin, which was trading above $30,000 on June 9, but fell below $18,000, then partially recovered, and has now reached more than 19,000

The best thing to do in such turbulent times is to think calmly and look for the best sources of new information that will help make appropriate judgments

He suggested that we can draw 5 key lessons from this rugged period, and one area of total uncertainty that will last at least two years.

Dealing with extreme volatility

The first lesson stems from the extreme volatility of the past few days, as the Bitcoin market is very tight due to its enormous market value. At around $19,500, the cryptocurrency has a market capitalization of $370 billion, surpassing oil giant Shell at around $200 billion.

With an asset of this size, it is expected that there will be a lot of short-term traders, who seek to buy when the value of the digital currency falls and sell when it rises, which helps to balance the market price, so that large price movements occur only when new information comes

On the other hand, this does not happen with Bitcoin, as it is traded 24 hours a day, 7 days a week, and it seems that the large lurch in prices occurs at midnight European and United States time, but it remains an illiquid security, and if you try to sell or buy a large amount of this currency, it may cause you a great loss, and since this applies to Bitcoin, it also applies more to other cryptocurrencies that are More capricious.

Knowing the truth about cryptocurrencies

The second lesson focuses on the fact that cryptocurrencies are not useful as a means of transaction, as they can be held as an asset, but their use is limited only if you want to buy something, and they probably cannot be used even for money laundering

Bitcoin is legal in two countries, El Salvador and the Central African Republic, but reports released last month proved that the value of El Salvador's property has fallen by 50%, and its use in stores appears to be limited.

Ascension

The third lesson is the fact that cryptocurrencies will need time to rebound. Mike Novogratz, for example, founder and CEO of Galaxy Digital Holdings, predicts that it will take some time for Bitcoin and Ethereum to return to an upward phase.

Interest Rates

The fourth lesson centers on the fundamental issue of interest-rate policy that the Federal Reserve took, when it decided last June to increase by 0.75% in an effort to crush inflation, even if it leads to a recession in the US. In this regard, this decision revealed that the transition to a tighter monetary policy undermines the most difficult categories of speculative investment, such as cryptocurrencies

No one knows the reality of the situation

The fifth lesson learned reveals that experts do not know the reality of the situation, as the PwC report by audit, confirmation, advisory and tax services indicates that the majority of crypto fund managers believe that Bitcoin will be worth $100,000 by the end of the year.

While American businessman and programmer Bill Gates says he will never use cryptocurrencies, Canadian businessman Elon Musk says that his company SpaceX will accept payments in Dogcoin, and this statement has raised his share price by 10%, proving the chaos that prevails in the field.

Uncertainty

In fact, normal metrics do not apply to this type of asset and therefore cannot be valued, adding to the uncertainty.

Bitcoin was officially launched in 2009, so it was generally present during the period of cheap money, and there has never been a period of such low interest rates before.

The writer summarizes that the march back to life