Silvergate: How Bitcoin investors can behave now

Silvergate: How Bitcoin investors can behave now

By Benson Toti - min read

The Bitcoin price experienced a drastic downward movement in the early morning hours of March 3, causing it to drop to around $22,000 in a very short time.

This confirmed one forecast in particular: namely the forecast that the Bitcoin course was about to make a directional decision. The cryptocurrency has trended about 4 percent weaker over the past 24 hours of trading, marking the biggest bitcoin sell-off so far this year. An event that many investors could not count on.

While this should hardly change anything in the strategy for professional investors, it is somewhat different for new investors: For new investors in the crypto market, Bitcoin shares are recommended for entry instead of investing larger amounts of money with whole Bitcoins.

Brief overview of the latest developments

  • Over $62 million in long BTC positions were liquidated in a matter of hours.

  • This was the third liquidation cascade within the last 12 months: after the Terra crash and the FTX bankruptcy in 2022.

How to proceed now? Forecasts are extremely difficult. Some talk of a clear oversell, which should level off again. On the other hand: Negative funding rates currently give the buyer camp a high incentive for a new entry into Bitcoin.

A temporary price recovery is expected by many investors and the positive signs on the US stock market shortly after this Bitcoin crash underline this scenario.

Overall, the situation for the Bitcoin course will remain uncertain in the coming weeks and months. Analysts see both positives and negatives that can affect price. Investors should therefore follow developments closely and adjust their investment decisions accordingly.

Correction with a short shock?

Despite the recent price correction and negative headlines, the fundamentals of the Bitcoin network remain stable. Network activity shows that the hash rate, which measures the total computing power on the proof-of-work network, continues to rise.

The hash rate has almost doubled since November 2021, although the price has fallen significantly over the same period of time. The number of active addresses on the Bitcoin network has also increased despite the current market situation, indicating growing demand and usage.

Fundamental data as the most important variable? The positive fundamental metrics of the bitcoin network could soon push the price higher again. Also, the negative impact of the Silvergate issues may be limited as the crypto bank is rather small and its impact on the overall market should be limited.

The bitcoin options market has also calmed down somewhat, meaning there is less risk of panic selling or massive liquidations.

In addition, there are other signs that Bitcoin could rise again soon. An important factor is the high demand for Bitcoin ETFs, which has been growing steadily since their launch in October 2021. Institutional investors are also showing increased interest in Bitcoin, which is reflected in the increasing volumes in the futures markets.

How can Bitcoin investors behave in phases of unpredictable developments?

Below are some approaches that investors can pursue in such phases.

Diversification: Bitcoin investors should diversify their portfolio to protect against unpredictable developments in the cryptocurrency market. Diversification can be achieved by buying different cryptocurrencies such as Bitcoin, Ethereum, as well as stocks and other asset classes.

A stop-loss order can help minimize the risk of loss by automatically triggering the sale of bitcoins whenever the price falls below a certain value. However, a stop-loss order cannot guarantee that the sale will occur at the desired price – at least in the case of strong market movements or high volatility.

Those who use technical analysis can also spot patterns and make decisions: Thorough technical analysis can help identify market sentiment and make informed decisions about buying and selling bitcoins. Key support and resistance levels are important.

Overall, risk management is particularly appropriate: Bitcoin investors should have a clear understanding of how much risk they are willing to take and how much they are willing to lose.

If investors adjust to events like Silvergate, FTX and similar “crises”, these will not be able to change the long-term strategy and the successes of investors.