These are times that try bitcoin investors' souls.
The cryptocurrency has been tanking for the last several days, locking arms with the stock market and falling off the edge of a cliff.
'To HODL or Not to HODL?'
Bitcoin was up 1.3% to $31,718.69 Tuesday, down 54.1% from its Nov. 10 all-time high of $69,044.77.
This is significant downturn, but a report by Glassnode said it remains modest when compared with the ultimate lows of prior Bitcoin bear markets.
July 2021 reached a drawdown of -54.2%, and the bear markets of 2015, 2018 and March 2020 capitulated at lows between -77.2% and -85.5% off the all-time-high, the report said.
So what to do? Should investors bail and invest in risk-averse sectors, or #HODL, a popular term among crypto enthusiasts meaning hold on for dear life.
"Bitcoin becomes a losing bet once you sell it for lower than the price at which you purchased it," Frank Corva, cryptocurrency specialist, Finder. "If you purchased bitcoin between July of 2021 and April of 2022 and you’ve yet to sell it, then, yes, you are in the red on paper."
However, Corva added "given the macro conditions, which include the Fed’s QT (quantitative tightening) measures and Russia’s invasion of Ukraine, bitcoin’s price has actually held up fairly well."
Bitcoin is at the price same levels at which it found itself late last May, Corva added, noting that "the same cannot be said for other hot assets like Disney (DIS) or Netflix (NFLX), which are both down significantly as compared to one year ago."
'Time Frames are Important'
"Even after its over 50% drawdown in price from November of 2021, bitcoin remains the best performing asset of the past decade," he said. "Also, if you purchased bitcoin right after the March of 2020 crash, you are currently up almost 1000% on your investment, whereas if you purchased a share of the S&P 500 ETF Trust 26 months ago, you are only up 65% on your investment."
Time frames are important to keep in mind when looking at bitcoin’s price action, Corva said.
"A good number of investors are confused right now with the current outlook of the digital currency ecosystem with the impermanent loss being faced with the plunge in the price of Bitcoin," said Valentina Drofa, founder and CEO of Drofa Comms.
While selling is not an option as it will amount to a permanent loss, she said "the confidence to continue HODLing or even buy the dip is currently absent as no one knows where the ultimate support level is."
Overall, Drofa said, investors who have sold have done so to prevent further economic measures coming from the U.S. that may affect the industry’s outlook in the longer term as the broader crypto ecosystem is known to react to low inflationary situations.
"At a price of $31,226 and over an 18% plunge in the past 7 days," she said, "the coin is at a level whereby a concerted effort from both the whales and retail investors is needed to return the market to its positive growth paths."
'The Market is Still Young'
Amidst all this, Drofa said, "bitcoin is not yet a losing proposition as institutional investor sentiment is still a major factor helping the coin stand its ground".
Nick Agar, the founder of AXIA, said "bitcoin is priced based on simple supply and demand economics and trades based on sentiment."
"It becomes a losing proposition when the sentiment becomes more negative than positive," he said.
Agar said "it remains to be seen what the long-term viability of bitcoin is as both a store of value and a medium of exchange based on its many inefficiencies including being environmentally destructive, slow, not being a productive asset, based on speculation and so on."
Travis Bott, CEO of Meta Labs Agency, pointed out that people are losing money on the dollar.
"Just go look at gas and food, prices," he said. "People are losing money on traditional markets especially those that bought into the hype and peak prices and are now panic selling at lower prices."
Bott said that educated investing principles like cost average buying are applicable to all markets.
"So if you bought high and sold low you lose at anything and need to learn about the fundamentals of investing," he said. "That has nothing to do with Bitcoin."
Five years ago bitcoin was $2,000 today, Bott added, the price is $30,000. Adoption for crypto and the application of blockchain continues to increase not decrease which means the long term outlook is still positive.
"However the market is still young and will react like other traditional market sectors," Bott said. "At the end of it all there is a fixed number of BTC and a continued growing base of buyers. So I am not betting against it over the next 5 years."
'Reports of My Death...'
"I think it’s premature to label bitcoin a losing proposition or to borrow from Mark Twain, let’s not exaggerate rumors of its death," Scott Sheridan, CEO of tastyworks. "Instead, I think we’re just seeing a sale of all asset classes from bonds to stocks to crypto."
Sheridan also believes the magnitude of the pullback in bitcoin is being exacerbated by the lack of regulatory clarity.
"I can’t emphasize that enough," he said. "When you cannot hedge a position with options it doesn’t leave you many choices other than to sell what you own. Options allow you to give a position some breathing room and reduce cost basis. Without them, the beta on your exposure becomes higher and that can lead to selling more quickly than you might otherwise."
Hugo Lee, CEO of global digital asset management platform Haru Invest, said that until 2019 and 2020, major investors of bitcoin were companies with aggressive tendencies such as Tesla (TSLA), but this hasn’t been the case since 2021.
"Now traditional powerhouses such as Goldman Sachs, Morgan Stanley and even BlackRock are investing in Bitcoin," he said. "Think about the level of research they would have carried out, especially from a technological perspective."
Lee said BlackRock, with $10 trillion assets under management, "would not have added bitcoin to their portfolio if there was even a slight risk of bitcoin plummeting to zero.”
And what about the future?
"What happens next is anyone’s guess," Corva from Finder said. "Many investors feel that the floor for bitcoin is around $30k, which we bounced off of last night."
Corva said it's not impossible that the price of bitcoin could go lower, but much of what happens to the price from here is highly contingent on whether or not the Federal Reserve remains hawkish.
He noted that bitcoin has been highly correlated to the Nasdaq in recent months and will likely continue to be in the coming weeks.
"Once the market does rebound, though, I posit that you’ll see greater upside from bitcoin than you will from S&P 500 or Nasdaq indices," Corva said.
