Why Is Bitcoin Going Down & What You Can Do About It

Bitcoin's price changes frequently, just like the weather. One day it’s sunny and warm, and the next, there’s a storm. Those sudden shifts can be unsettling if you’re a Bitcoin investor, especially when prices plummet. If you're asking yourself, "Why Is Bitcoin Going Down?" you're not alone. Understanding the factors driving Bitcoin's decline can help you confidently navigate the market's volatility. In this article, we’ll break down the basics of Bitcoin supply and demand to uncover why Bitcoin's price is falling and what it could mean for investors like you. We’ll also identify actionable strategies to help you weather the storm and make informed decisions as the market changes.

Bitcoin Magazine Pro’s Bitcoin Analysis offers valuable insights to help you understand what's behind Bitcoin's recent price drop and discover actionable strategies for navigating the market effectively.

Why is Bitcoin Going Down?

BTC to USD Chart - Why Is Bitcoin Going Down

Bitcoin's price fell today as the market’s attention turned to the drop in Donald Trump’s winning odds in the upcoming United States presidential elections. Three days after hitting $73,600—its second-highest level in 2024—Bitcoin dropped by over 6.50% to reach around $69,200 on Nov. 1. That includes a 4.65% drop in the last 24 hours. BTC's decline aligns with a shrinking lead for Trump over Democratic candidate Vice President Kamala Harris on prediction markets like PredictIt, Polymarket, and Kalshi, where users wager on election outcomes.

Bitcoin has been widely considered a Trump hedge due to the former president’s strong support for the sector, which has invested heavily in advocating its interests throughout his campaign. Earlier in the week, when Trump held a more substantial lead against Harris, Bitcoin approached March’s all-time high of $73,794 (data from Bitstamp), coming within just $194 of the peak.

Bitcoin's Price Correction Signals a Bearish Trend

Bitcoin’s price decline today is part of an overbought correction. It has declined since its daily relative strength index (RSI) crossed above 70—an overbought area—on Oct. 29. That doesn’t necessarily mean a reversal is imminent, but it indicates that the rally was likely overheated.

Bitcoin's Price Action and the Rising Wedge Pattern

Bitcoin’s drop has returned its price inside its prevailing ascending channel range, which resembles a rising wedge. A rising wedge is typically a bearish pattern, where the price moves upward within converging trendlines, indicating that buying momentum may weaken. In this case, Bitcoin’s price has slipped below the wedge’s upper trendline, now facing potential declines toward the lower trendline at around $68,000. If it breaks below the lower trendline, BTC will enter a breakdown stage.

Potential Price Correction and Target Levels

Per technical rule, a wedge’s breakdown target is measured by adding the wedge’s height to the breakdown point. In other words, Bitcoin price can still see a correction to the $55,500-58,000 area in the final two months of this year.

What Makes Bitcoin's Price Go Down?

Bitcoin Chart - Why Is Bitcoin Going Down

Social Media Sentiment: Fear, Uncertainty, and Doubt

Discussions on social networks like Twitter and YouTube can be a useful tool for gauging public sentiment surrounding Bitcoin. While the Bitcoin market is now big enough that it’s difficult for any single trader to affect its price significantly, social media can still help amplify individual opinions and influence the outlook of the wider community. In some instances, these messages may alter general market sentiment and motivate those who have a low demand for Bitcoin in their life to sell their BTC.

FUD on Bitcoin's Price

“FUD,” short for “fear, uncertainty, and doubt,” is commonly used in the Bitcoin community to describe this effect. Across social media, many have argued that Bitcoin wastes energy and accelerates climate change. Meanwhile, others assert that Bitcoin mining helps to combat the problem. Regardless of which side is right or wrong, these widespread discussions have historically been followed by a decrease in demand for Bitcoin, which has caused its price to fall. On May 12, 2021, Elon Musk tweeted that Tesla would no longer accept Bitcoin as payment for automobiles due to the carbon emissions associated with Bitcoin mining.

Elon Musk's Tweet and Its Effect on Bitcoin's Market Sentiment

That day, the price of BTC fell by more than 12% and would decline by a further 40% over the following week. Elon Musk confirmed that the pivot was due to Bitcoin’s perceived environmental impact. While multiple factors were at play, many feel this tweet contributed to a change in market sentiment, which altered demand for Bitcoin and helped decrease its price.

Macroeconomic and Geopolitical Factors Can Hurt Bitcoin Prices

Bitcoin prices have often been correlated as many institutional investors seek exposure to BTC. As a result, it has been common to see Bitcoin prices fall in tandem with other markets during economic downturns as larger investors shift toward risk-off assets like bonds and treasuries.

During the initial outbreak of COVID-19 in 2020, Bitcoin’s price plummeted nearly 40%. This event was characterized as a “Black Swan,” demonstrating how macroeconomic effects can heavily impact BTC prices. In 2022, the rise in inflation in the first half of the year and the Russian invasion of Ukraine in February also negatively impacted broader market prices, including global equity markets and BTC. Bitcoin peaked in November 2021 but declined by about 57% in the first half of 2022, coinciding with macroeconomic and geopolitical-induced derisking.

Regulatory and Legal Changes Can Create Uncertainty for Bitcoin

Bitcoin has existed in a complex and ever-changing global regulatory environment for many years. Some nations have embraced it as a revolutionary technology that will drive prosperity, while others have blocked access to it completely.

Many more have either yet to take an official stance or are still developing a viable framework that balances investor protections while still encouraging innovation. Several countries have enacted adverse regulatory action, including temporary bans, issued warnings and outright bans. After some of these decisions had been made public, Bitcoin’s price fell in the short term.

China

China is one of the more notable nations that has significantly impacted Bitcoin prices through its regulatory changes. Over the years, it has announced multiple crackdowns and nationwide bans on Bitcoin trading and mining, which significantly hurt Bitcoin’s price. In January 2018, the Chinese government ordered all of its country’s banks to cease all services directed toward Bitcoin-related companies.

The announcement came just a few weeks after BTC’s price had topped out, putting further pressure on holders to sell. After the announcement, BTC’s price fell 50% over the following three weeks. China rattled the market again in June 2019, declaring Bitcoin trading illegal. BTC’s price had been strong in the first half of 2019, but shortly after this announcement, prices began to reverse. By the end of the year, BTC prices had fallen by more than 40%. As the world's most populated country, regulatory changes in China have historically contributed to global shifts in the price of Bitcoin.

The United States

The United States government is another regulatory powerhouse that wields significant power over the Bitcoin market due to its dominant economic status. Most of the world’s largest and most profitable companies were founded and are still based in the United States. In 2018, the country’s Department of Justice (DOJ) launched a criminal probe into Bitcoin market manipulation. Prices dropped 6% shortly after the investigation as demand for Bitcoin decreased.

In November of the same year, the DOJ extended its probe to investigate allegations of Tether manipulating BTC prices during the 2017 bull market. This event and other market factors contributed to prices falling a further 30% over the following 24 days. While the Bitcoin network is decentralized and accessible to all, governments can still target companies that make accessing the network easier. When these events happened in the past, the market often reacted in a way that decreased the price of Bitcoin.

Negative Events Can Decrease Demand for Bitcoin

Hacks, exploits, data breaches, and scams may negatively affect Bitcoin’s price and traders’ overall confidence in the BTC market. While the Bitcoin network has never experienced a catastrophic hack, several companies and services operating within the Bitcoin industry have been targeted.

The Mt. Gox Hack and Its Impact on Bitcoin

Negative events associated with these companies have translated to decreased demand and, therefore, lower prices for Bitcoin. In early 2014, Mt. Gox was a Bitcoin exchange that handled over 70% of all transactions worldwide. In February 2014, Mt. Gox halted all Bitcoin withdrawals. By the end of the month, the exchange filed for bankruptcy protection, stating it had lost about 750,000 BTC (about 3.5% of all Bitcoin) in customer funds and blaming hackers for the issue.

The Decline in Demand and Bitcoin's Price

The price of Bitcoin fell over 30% from the first halting of withdrawals until the admission of a hack. As investors lost confidence in Bitcoin after the largest trading venue suffered from this hack, demand for Bitcoin decreased, pushing its price down as well.

Trading Events Can Create Short-Term Price Volatility

Many traders use technical analysis to gain insights into Bitcoin's possible future price movements. These methods rely on patterns and structures informed by math and psychology to time trades and predict outcomes with varying degrees of success. A death cross is an example of a chart pattern that some traders look for when deciding whether or not an asset has entered a bear market.

Technical Indicators and Trading Events Impacting Bitcoin's Price

While not always reliable, some believe that this indicator, used in conjunction with others, can potentially lend clues to traders who are looking to make better-informed trading decisions. Another example of a trading event that can negatively impact Bitcoin prices is long squeezes in the BTC Futures market. Traders will often use futures contracts to gain exposure to Bitcoin’s price movements, often using leverage. Certain trading events, like long squeezes, can impact Bitcoin’s short-term price.

Long Squeezes on Bitcoin's Price

A long squeeze occurs when a sudden and dramatic price fall causes a widespread margin call and liquidation of long trades. The downward price trajectory causes traders to sell their BTC holdings to avoid further losses. These liquidations have caused as much as $10 billion worth of Bitcoin to be sold daily. Sometimes, liquidations can drive Bitcoin prices down enough to trigger a cascade of liquidations at lower levels. This process can cause Bitcoin’s price to drop sharply within a very short period.

Technical Patterns Help Drive Bitcoin’s Price

Another trading-related demand driver for BTC is the perception of its historical price patterns and trends. When traders notice a repeat of events or patterns that took place before Bitcoin price rallies in the past, they may increase demand for Bitcoin and drive the price higher as a result. Technical analysis is commonly used to try and predict future price movements based on current trends.

Bullish Chart Patterns and Market Sentiment

When various bullish chart patterns form on the BTC chart, particularly over longer time frames, excitement can spread among prospective Bitcoin buyers. This anticipation may lead to increased demand and a positive breakout to higher prices. Golden crosses are a popular bullish chart pattern that often induces excitement and anticipation of an improving market.

Historical Performance of Golden Crosses and Future Outlook

Since 2013, ten golden crosses have appeared on the daily BTC price chart. Of those ten, a bull market has followed seven golden crosses (70%). Predicting how the price will react to any news in the future shouldn’t be your sole factor in any trading decision. The market for BTC is still in its early years and subject to regular volatility. There’s never any guarantee that the price will react to an event the same way as it did in the past.

What are Some Ways to Make Money From Bitcoin Volatility?

Person Trading on Mobile - Why Is Bitcoin Going Down

HODL: The Strategy That Helps You Ignore Bitcoin Volatility

Bitcoin’s short-term price swings can give you whiplash. It’s not uncommon for the price of Bitcoin to fluctuate by thousands of dollars within a single day. If you want to reduce your exposure to Bitcoin volatility, one strategy is to leave your investment alone.

The HODLing strategy can help you avoid losses from short-term volatility and gain returns from long-term value appreciation.

You purchase Bitcoin
Hold it for a long time
Ignoring price swings
Waiting for the market price of Bitcoin to increase compared to its purchase value

HODl stands for Hold on for Dear Life. If you’re a beginner, you’re not well-equipped to capture market volatility and trade Bitcoin profitably, so you’re better off investing for the long term. The HODLing strategy is much like the buy-and-hold investing strategy used for stocks. Instead of trading Bitcoin based on market timing, you hold onto it despite any market fluctuations.

Risks of HODLing and When to Sell

HODLing isn’t without risks. More precisely, Bitcoin and blockchain technology might not be the revolutionary innovation everyone hopes for. Equally, there are times when it’s best to sell Bitcoin, such as when you’ve gained a substantial amount. If Bitcoin has doubled from its initial price, this may be an opportunity to sell.

Complexity of HODLing and Dollar-Cost Averaging

Although it may sound simple, HODLing is complicated. To effectively HODL, you must grasp the importance of dollar-cost averaging, which involves investing the same amount of money at regular intervals. You’ll be purchasing Bitcoin during market ups and downs.

Don’t Invest More Than You Can Afford to Lose

Losing streaks are inevitable in Bitcoin trading, even if you leverage technical analysis to identify trends and signals.

If you invest more money than you can afford to lose, you’ll be pressured to sell your Bitcoin due to panic or liquidity issues.
Before you start the investment journey, invest only the money you’re willing to lose so that you can focus on your long-term goals and avoid making impulsive decisions.
If you invest every dime you have, you’ll lose every dime you have. Unlike a savings account, where your money is backed by deposit insurance, the value of Bitcoin is left to the whim of the market.

Rebalancing: A Strategy to Reduce Bitcoin Volatility Exposure

Focus on rebalancing on a set time basis, from weekly to annually. Rebalancing means adjusting your portfolio to maintain the desired asset allocation; it involves buying and selling digital assets to ensure your portfolio holds a specific mix of tokens. When it comes down to BTC investing, you shouldn’t put all your eggs in one basket.

There are several rebalancing strategies you can use.

You can use a threshold rebalancing strategy, which requires daily portfolio monitoring. It’s triggered when the portfolio exceeds a specific percentage of deviation from the target allocation. For example, you can cap allocation changes at 15%. If the allocation goes beyond this point, either positively or negatively, you rebalance.
Another strategy is calendar rebalancing, where you set a regular schedule. If you rebalance your portfolio weekly, adjust your asset allocation beforehand.

Have a Regular Bitcoin Savings Plan

One of the best ways to overcome Bitcoin volatility is to avoid it altogether by staying invested and not paying attention to short-term market fluctuations. If you control important things, such as how much I save, I can balance this volatility with long-term growth.

Choose a predetermined savings amount on a regular schedule. Buy Bitcoin during bull runs and stack even more when it’s for sale.
A savings account is the best place to deposit my Bitcoin, offering safety and a consistent rate on the return. Not only do I get paid interest on my deposit, but I can also withdraw my funds anytime.

If I agree to lend my Bitcoin, I can earn interest by depositing my tokens on a blockchain platform. If I lock up my Bitcoin for a while, Bitcoin savings accounts offer more favorable interest rates. Plenty of options exist, including well-established exchanges; the interest rate offered will depend on market conditions and be paid out in Bitcoin. Until Bitcoin adoption permeates, I know that my short-term needs are covered.

Control Your Emotions When Investing in Bitcoin

Knowing how to control your emotions can be essential while trading Bitcoin. It means the difference between success and failure. Your mental state can affect your investment decisions:

Slow your breathing
Avoid panic attacks
Recognize irrationality

Due to fear of missing out on possible gains, you might feel pressured to make investments – in other words, you’re tempted to buy and sell impulsively. Greed can also influence your decisions: you become committed to your Bitcoin holdings and refuse to sell, even if the time is right. You can’t solve my irrational behaviors without a trading plan.

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Why Is Bitcoin Going Down & What You Can Do About It

3 de noviembre de 2024