Should You Invest in Bitcoin During the Crash, or Is the Worst Yet To Come?

By

Jun. 21 2021, Published 11:00 a.m. ET

Bitcoin has continued its dismal run and is trading lower on Jun. 21. Over the last month, Bitcoin prices wobbled after hitting all-time highs, and they're now more than 50 percent below their peaks. Should you invest in Bitcoin during the crash, or is there more weakness in store for the cryptocurrency?

Article continues below advertisement

Bitcoin's returns have turned negative this year despite the currency being above its 2020 lows. Several factors have been driving volatility in Bitcoin, namely Tesla CEO Elon Musk’s tweets and China's cryptocurrency regulations.

Why are Bitcoin prices falling?

China has barred its financial institutions from dealing in cryptocurrency transactions, including clearing, trading, and settlements. The country's crackdowns affecting cryptocurrencies is nothing new—in May 2021, Bitcoin and other crypto assets fell after China barred banks from dealing in them.

Article continues below advertisement

According to Charles Hayter, CEO of crypto data company CryptoCompare, “China often does this.” Hayter added, “When China sneezes, bitcoin catches a cold. But this flexing of regulatory muscle is often just that—in the past eight years, this story has risen its head at least three times.”

Article continues below advertisement

China cracks down on cryptocurrency mining

Along with being concerned about cryptocurrency trading's speculative nature, China is worried about Bitcoin mining. A large part of the nation's electricity is generated through coal, and China has been shutting down several industries to control pollution. Bitcoin is one of them. Almost two-thirds of bitcoins are estimated to be mined in China.

Musk also cited the high energy requirements of Bitcoin mining when he announced Tesla would stop accepting Bitcoin as payment.

Article continues below advertisement

Michael Burry on Bitcoin

Michael Burry of “Big Short” fame also tweeted about cryptocurrencies, saying, “All hype/speculation is doing is drawing in retail before the mother of all crashes. When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries. History ain’t changed.”

Article continues below advertisement

Like some other tweets, that one has been deleted. Another Burry tweet that drew attention was his disclosure of a massive short position in Tesla stock in Q1 2021. The market opinion on Tesla stock varies. While some see it as a disruptor and predict it rising to new levels, many analysts value it at a fraction of its current price.

Article continues below advertisement

Should you buy Bitcoin after the crash?

Cryptocurrencies are an alternative asset class, and there's no real way to arrive at a price prediction for them. That said, Bitcoin charts look bearish—prices seem to be headed for a “death cross,” which is the 50-day SMA (simple moving average) falling below the 200-day SMA.

In the U.S., sentiment has also soured as regulators have become apprehensive of Bitcoin and crypto assets, including U.S. Treasury Secretary Janet Yellen. One counter view that's developing, however, is that as Bitcoin mining moves out of China, the cryptocurrency may become more “green” and more companies might be willing to transact in it.

Advertisement

More From Market Realist

    • CONNECT with Market Realist
    • Link to Facebook
    • Link to Twitter
    • Link to Instagram
    • Link to Email Subscribe
    Market Realist Logo
    Do Not Sell My Personal Information

    © Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.