The strongest point could turn into Bitcoin’s greatest risk

Investors’ enthusiasm for Bitcoin’s continued uptrend could be a double-edged sword for the cryptocurrency.

Investor excitement surrounding Bitcoin’s rally this year has helped the digital currency set records and attract more new investors. Yesterday, the price per coin was up to 58,332 USD. However, this enthusiasm could also expose Bitcoin’s biggest risk right now.

Part of the reason, if not all, makes Bitcoin so attractive is that many investors consider it a store of value. In other words, it has value because it is perceived as valuable. It is possible that longtime Bitcoin buyers believe that the digital currency will become the legal alternative currency, or that blockchain technology will fundamentally change the world in many different ways. However, other buyers – especially recent entrants – entered the market for just one simple reason – prices are continually rising.

Bitcoin price movements over the past 3 months.

“Excitement has turned into demand, and that demand has turned the market. Investor interest in Bitcoin has never been this big,” said Meltem Demirors – Chief Strategy Officer, Asset Management number at CoinShares said on Yahoo Finance.

This sentiment is even more evident in Bitcoin price. Last year, the amount more than quadrupled and this year alone more than doubled. The number of new investors has also shown interest, with a record 35.6 million Bitcoin addresses, according to The Block / Glassnode. Bitcoin recorded $ 367 million in the week ending Feb. 15, according to CoinShares.

However, the higher Bitcoin is, the more transactions based on FOMO (fear of being left behind) explode. The risks will increase.

“My concern is that when the market gets too hot, we will see strong leverage and cost of capital expensive. Any time that leverage is removed from the market, capital withdrawals will strengthen. , creating fear, “Demirors explained.

Of course, Bitcoin investors have already experienced this. They saw the price of money plunging from nearly $ 20,000 at the end of 2017 to $ 4,000 at the beginning of the following year. Even if they do not believe this will repeat, that memory will still be a deep hole, reinforcing Bitcoin’s image as a very volatile investment tool.

Although Bitcoin has not had such a big drop so far, this digital currency has dropped to around $ 40,000 in early January and below $ 30,000 a few weeks later before rebounding. In the eyes of JPMorgan strategists, this volatility is still a risk. Earlier this month, the bank warned that Bitcoin’s rally would be hard to sustain until volatility subsides.

Ha Thu (According to Yahoo Finance, CoinDesk)


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