Bitcoin and the entire cryptocurrency marketplace have been at the top of most financial headlines for the past several weeks. It’s no secret that after the implosion of exchange FTX, the entire segment is in serious trouble. Since the early days of the digital currency market more than a decade ago, hundreds of billions of dollars have flowed into and out of the coffers. Volatility has always been one of the expected features of owning, and a quick look at the historical chart tells the story.
Ups and downs are commonplace, but there’s something unique about the recent crisis. As more national governments get into the digital currency game and create legislative obstacles for decentralized forms of money like bitcoin, the 2020s could be a make-or-break decade for the asset class. Many enthusiasts now consider swapping crypto for cash and have expected an eventual showdown between national governments and crypto exchanges, and the FTX fallout might be the beginning of such a confrontation.
Potential Price Movements
Where could the price of BTC travel in 2023? Already down by about 60% from its recent high, it is likely to slide even more, perhaps to the $5,000 mark. That would be a major psychological support point and indicate that the leading player in the niche had hit a possible bottom. The extreme volatility and risk of holding BTC in a portfolio are why investors use other methods to play the market.
There has recently been plenty of bitcoin trading via CFDs (contracts for difference) through online brokerage firms that offer CFD buying and selling. Why are CFDs a preferred instrument for cautious investors and traders? In addition to the low cost of entry, the contracts do not obligate the holder to own the underlying asset, in this case, a potentially volatile crypto coin. There is a case to be made for a $5,000 level sometime within 2023, but even that scenario is a bit pessimistic. Some enthusiasts believe the bottom has already been hit, and it will benefit from bargain hunters and first-time buyers who expect a rebound.
Opportunities for Investors
Savvy investors always find opportunities in price swings, whether on the upside or downside. In the case of bitcoin, CFD traders can earn a profit on price moves in either direction. That’s because the nature of contracts for difference is unique. Holders don’t own the underlying asset, but earn a profit by correctly predicting a rise or fall. It stands to reason that even pessimists can profit from a price collapse if they purchase a contract in that direction, and prices indeed drop. The same is true for upward moves. The versatility of CFDs, along with a purchase price set by buyers are just two of the factors that make the instruments ideal for speculators in the crypto sector.
Bargain Hunting
Identifying market bottoms can be a tricky business, but many are already trying to predict when it will touch its minimum price level. While the $5,000 number gets plenty of media attention, it’s important to remember that the worst may be over, with BTC sitting at $17,423 in late 2022. The value has been consistently sliding since November 2022, losing nearly 60% of its value since that time. However, since June, there have been some short-term rises, but for six months, BTC hasn’t been below $17,000, so there’s a good argument for that level as a possible bottom or at least temporary support.
Diversifying with Other Assets
Another opportunity lies in diversification, with gold, blue chip stocks, REITs (real estate investment trust shares), and commodities within a well-balanced portfolio. Few, except the most devoted crypto advocates, would park all their discretionary investment capital in a single asset. Holding any crypto comes with risks and opportunities, but luckily there are ways to minimize risk and maximize the upside through diversification.
For anyone desiring a successful portfolio strategy who believes current BTC prices are a bargain, a small percentage of holdings in a wider portfolio could be a prudent move. On the other hand, for those who want to wait for a fall to $5,000, it would be wiser to wait and see. Bitcoin is currently in a state of transition, as even its most ardent fans will admit. The question is whether the transition is to a stabilized price level near $10,000, $5,000, or even $20,000. In the meantime, using flexible instruments like CFDs can be an optimal way to gain maximum protection without owning it outright. Additionally, for people who just want to test the waters with a small investment in BTC, contracts for difference are a smart, secure way to do so.
