What To Do and What Not To Do When Bitcoin Is Dropping and Why

What To Do and What Not To Do When Bitcoin Is Dropping and Why - logo android 150x150

By PrimeXBT

Reviewed by Dirk Hartig

March 1, 2021
Reading Time: 8 min
What To Do and What Not To Do When Bitcoin Is Dropping and Why - primexbt btc dropping

At its core, Bitcoin is a digital currency – a form of electronic cash that can be sent from peer-to-peer without the involvement of a third-party such as a bank, payment processor, or government agency. But Bitcoin is truly is so much more than that, and is among the most important and disruptive technologies of the 21st century.

Bitcoin a decentralized cryptocurrency, and with its inception also came blockchain – an immutable, public, distributed ledger that aggregates and validates all transactions made in Bitcoin.

Since it was first released into the wild over ten years ago, Bitcoin has been used as a form of payment, a store of value, a means of value transfer, and has recently even considered a safe haven asset alongside gold, silver, and other precious metals.

Bitcoin is often demonized for its illicit use by criminals for things like dark web drug transactions, malware, and money laundering, and it has earned a negative reputation for its volatile price swings, impact on energy consumption, and for being responsible for repeated financial bubbles that pop, leaving investors holding heavy bags and losing capital.

But although Bitcoin can be used for negative things, it features benefits so positive, it could eventually replace all fiat currency, and become the global reserve currency of the internet and future.

Bitcoin was hard-coded to feature an inflation-resistant fixed supply of 21 million BTC that will ever exist. This digital scarcity is what in part gives Bitcoin its value, and has helped it grow as a safe haven asset alongside gold. It is also why Bitcoin is often referred to as digital gold.

Each BTC is divisible by 100 million smaller parts known as a Satoshi, named after the creator of Bitcoin, therefore, Bitcoin can be broken down by 8 decimal places, with the smallest recognized Bitcoin unit being 1 Satoshi or 0.00000001 BTC.

Bitcoin’s Price History: From The Early Days To The Future of Finance

When Bitcoin was first released into the wild, it was virtually worthless, valued at a mere fraction of a penny. But over time, as more and more people began to use Bitcoin and understand its potential, people started buying up the asset expecting its value to rise in the future, which caused an extreme offset in the scarce supply weighted against demand.

This demand in the face of digitally coded scarcity helps Bitcoin’s value rise. But when supply outweighs demand, often after the asset has skyrocketed in value and traders and investors are sitting in extreme profit, do they start selling the asset at a profit, causing a downtrend and price retracement.

After each successive Bitcoin rally, a bear market follows, resulting in much of the value gained erased from the cryptocurrency’s price.

But Bitcoin always rises again, so just because it is dropping now doesn’t mean it won’t eventually rise in the future. Bitcoin dropping also doesn’t have to be a negative thing, and can instead act as an opportunity to profit and stack even more Bitcoin – but more on that later in the article.

Early Bitcoin: 2010 to 2013

During these early days of BItcoin, people barely knew what it was, let alone how to use it or why they would even want to do so. 

Early prices weren’t regularly recorded, and transactions were often made between two parties who would agree upon a price depending on the size of the transaction.

The earliest recorded but unconfirmed prices put each BTC at a price of roughly $0.0008 to $0.08 around July 2010.

A year later in June of 2011, Bitcoin reached $30 each in a massive, year-long rally. It also resulted in the first bear market the asset ever experienced.

Prices bottomed out at around $2 per BTC, then later spiked upward to $261 by the time April 2013 rolled around. The high also resulted in another major pullback and bear market, where Bitcoin fell back to just $60.

At the end of 2013, Bitcoin surged once again, this time taking the price of the first-ever cryptocurrency to a then all-time high of $1,150 at the peak.

Mid-Life Bitcoin: 2014 to 2017

Following the record set at the end of 2013, a long, arduous bear market lasted for two full years before Bitcoin rebounded and reversed into a bull trend again.

At the low, Bitcoin fell to just $160 from over $1,000 and formed a double bottom pattern before rising once again.

At the start of 2016, Bitcoin began to look upward toward the sky and never looked back. Bullish momentum took Bitcoin on a rollercoaster ride towards its current all-time high of 2017.

The meteoric rise helped put Bitcoin on the map and make it a household name. But by December 2017, everything was ready to once again come crashing down.

Current Bitcoin: 2018 to 2020

Come 2018, Bitcoin had another massive crash, that resulted in over 80% drawdown from the all-time high it set at the peak of the crypto hype bubble. The bubble popping itself is the best explanation as to why are cryptocurrencies going down.

The bubble popped, and it left investors holding extremely heavy bags that are still likely underwater some two years later.

Those who bought Bitcoin at $20,000 are still down more than 50% from that high.

However, Bitcoin crashed all the way down to $3,100, which turned one investor’s losses into another trader’s financial opportunity.

Bitcoin rocketed from lows in late December 2018 to a high of $14,000 in mid-June 2019 but failed to set a new high, falling back lower to find support.

It caused the first-ever cryptocurrency to fall back into a downtrend, all the way to $6,400 at the current low. But with price predictions ranging from $100,000 to $1 million per BTC, Bitcoin will go back up again eventually.


Read Bitcoin price forecast

Why Is Bitcoin Dropping? All-Time Time High To the Bottom

There are many factors that could be responsible for what’s going on with Bitcoin currently and answer the question of why is Bitcoin going down once again.

Leftover negative sentiment from the bubble pop is the likeliest reason for Bitcoin’s continued bear market. The cryptocurrency couldn’t retest its current all-time high, which has caused many investors to rethink the asset.

Regulatory guidelines are changing now after Facebook introduced its Libra cryptocurrency to the world, and it could have a negative impact on Bitcoin.

People could also be realizing that Bitcoin isn’t yet ready to be widely adopted and still requires the development of second-layer technology to improve upon the base technology powering the asset and its blockchain.

Bitcoin transactions are still relatively slow, especially compared to shiny new altcoins, which could be absorbing much of Bitcoin’s value, causing its price to drop.

Trading volume has also been declining showing a clear lack of interest in the asset class.

What Determines Bitcoin’s Price? Limited Supply Versus Unlimited Demand

Bitcoin’s price is influenced by a number of factors, but none more than simple supply and demand market mechanics. Bitcoin was designed to features a scarce supply, so that when demand rises, so does its value.

The high demand and the low supply, causes Bitcoin’s price to go parabolic when FOMO is permeating markets.

The amount of value transacted across the Bitcoin network also appears to influence price action, as does the asset’s scheduled halving that reduces the BTC reward miners receive for mining Bitcoin and validating the blockchain.

What To Do When Bitcoin Is Going Down? HODL No More

When Bitcoin’s price is going down, the crypto community often says that the best strategy is to HODL – an acronym for “hold on for dear life” popular among crypto traders who can’t handle the asset’s strong volatility.

But HODLing Bitcoin through downtrends means losing money at a rapid rate. Bitcoin dropped in price by over 80%, falling from $20,000 to $3,000. Buying a whole Bitcoin and then holding from top to bottom would have resulted in a $17,000 loss.

However, there are ways to profit from falling Bitcoin prices.

1. Going Short

Going short is the trader’s best answer to falling Bitcoin prices. Not only can traders prevent themselves from further losses by entering a short, but they can profit from prices falling using the order type.

PrimeXBT offers the ability to go long or go short on Bitcoin and other assets, including forex, commodities, stock indices, and other crypto altcoins like Ethereum, Ripple, EOS, and Litecoin.

2. Trading With Leverage

In the above example, Bitcoin dropped from $20,000 to $3,000 resulting in $17,000 in losses for those that held. Had they opened up a short trade at 100x leverage using PrimeXBT at the top of Bitcoin’s bull run, and held the short trade all the way to the bottom, it would have resulted in $1,690,000 in profits generated. Not only would the trader avoided any losses and minimize any risk, but the hedge short trade would also have resulted in significant wealth being generated.

Leverage allows traders to improve the return on Bitcoin trading strategies by gearing positions, allowing the trader to make trades with sizes up to 1000x times their initial starting capital. The result is as much as 1000x times the profit generated.

So the next time you see Bitcoin falling or at the next Bitcoin price drop, remember, you can profit from declining prices by shorting with 100x leverage.

Best Downtrend Bitcoin Trading Strategies

There are several trading strategies that involve effectively trading Bitcoin for profit. Here are some of the most effective Bitcoin trading strategies that exist today.

Some strategies are effective for uptrends, or ranging markets, but here, we’ll focus on effective trading strategies for when Bitcoin is in a downtrend and dropping in value.

Short When Price Falls Below Mid-Bollinger Band

Each time Bitcoin price falls below the mid-Bollinger Band line, it’s a short signal that regularly resulted in strong profits for the trader.

Shorting Tops When Bearish Divergences Emerge

Even though it appeared as though an inverse head and shoulders bottom had formed, Bitcoin had been signalling that more downside was ahead with a massive bearish divergence. Shorting this top led to extreme profits with 100x leverage.

What To Do and What Not To Do When Bitcoin Is Dropping and Why - image2

Shorting Breaks of 50-Day Moving Average

The 50-day moving average is a short-term trend indicator that can be used for short signals during a bear market. Each time Bitcoin passed below the 50MA, it was a short that resulted in strong gains.

What To Do and What Not To Do When Bitcoin Is Dropping and Why - image3

Shorting MACD Crossovers For Longer-Term Positions

The MACD lines crossing down can be a powerful short signal on longer-timeframes. Each of the two sell signals in the image below resulted in massive profits for traders at 100x leverage.

What To Do and What Not To Do When Bitcoin Is Dropping and Why - image4

What NOT To Do When Bitcoin Is Going Down: The Other Side of the Trade

The worst thing you can do is panic wondering when will Bitcoin go back up. It always does, it’s just a matter of time and markets going through their normal bull and bear cycles. Traders panic selling results in losses just as much as holding through a downtrend was, so careful planning of trading strategies is necessary to profit from falling markets.

The second worst thing you can do is simply hold strong while asset prices are declining. Instead, traders can short Bitcoin at 100x leverage and profit from falling markets.

Don’t be too scared to buy the asset in small amounts or open a hedge long. When Bitcoin eventually turns around it could rise to prices of $100,000 or more per BTC. You don’t want to miss the bottom, so being too afraid to buy a downtrend is also a failure that can impact a trader’s bottom line.

Conclusion: Why Hold Bitcoin Downtrends When You Can Short The Market?

The next time you see Bitcoin going down or dropping in value, don’t panic, and instead register for PrimeXBT – an advanced trading platform for newbies and professionals alike to profit from both rising and falling markets.

PrimeXBT offers all the tools necessary such as long or short positions, and up to 1000x leverage across cryptocurrencies like Bitcoin and CFDs for forex, stock indices, commodities and more.

With built-in chart tools, advanced order types like stop loss and take profit orders, the risk associated with trading Bitcoin can be reduced, and even when the asset is falling in price, traders can turn those losses into a significant return on investment.

Risk Disclaimer
Investing in or trading gold or other metals can be risky and lead to a complete loss of capital. This guide should not be considered investment advice, and investing in gold CFDs is done at your own risk.
The information provided does not constitute, in any way, a solicitation or inducement to buy or sell cryptocurrencies, derivatives, foreign exchange products, CFDs, securities, and similar products. Comments and analysis reflect the views of different external and internal analysts at any given time and are subject to change at any time. Moreover, they can not constitute a commitment or guarantee on the part of PrimeXBT. The recipient acknowledges and agrees that by their very nature any investment in a financial instrument is of a random nature and therefore any such investment constitutes a risky investment for which the recipient is solely responsible. It is specified that the past performance of a financial product does not prejudge in any way their future performance. The foreign exchange market and derivatives such as CFDs (Contracts for Difference), Non-Deliverable Bitcoin Settled Products and Short-Term Bitcoin Settled Contracts involve a high degree of risk. They require a good level of financial knowledge and experience. PrimeXBT recommends the consultation of a financial professional who would have a perfect knowledge of the financial and patrimonial situation of the recipient of this message and would be able to verify that the financial products mentioned are adapted to the said situation and the financial objectives pursued.

Other news