What were the components of this storm? First the war with Ukraine, which generated political instability. Second, the Fed rate hike, which for the first time in 20 years suffers an increase, and in a world with political instability and rate hikes, the big funds logically change risky investments for safe ones.
Third, many Bitcoin holders were heavily leveraged, unable to withstand a downturn. The expectations of a continuous rise generated by the Bull run during 2021 caused a large number of investors to borrow money to buy bitcoins. But this type of loan generates volatility, because as soon as the price drops to a certain level, investors have to sell their bitcoins to pay off the loan. Namely, They do not sell them out of mistrust of the currency, but because they are financially obligated.
In this context of political instability, rising rates and strong leverage, two specific events occurred that increased fears in the crypto world. The first was the collapse of LUNA, one of the top 10 cryptocurrencies, which for various reasons collapsed in less than 24 hours, causing panic among investors, dragging down the rest of the cryptocurrencies, including bitcoin, which had nothing to do with it.
The second event was some exchanges that, due to not having grown solidly, could not withstand the bull run and had to prevent their users from extracting funds. Such was the case with Celsius, which sent a statement saying that for the sake of its users it was not allowing them to withdraw their money.
To understand the implications of this, it is as if in Argentina, in a context of political instability and a soaring dollar, some banks implement a corralito like the one from 2001, to prevent their clients from withdrawing their savings. We all know what happened in 2001, it goes without saying. Chaos, panic, running, cacerolazos.
And the flood began. Bitcoin lost its bottom of $30,000 and fell to $20,000. But the news is not how much bitcoin fell, but why the heck it fell so little. And that’s what’s surprising, because no bank can withstand a run, not even the most solvent. But bitcoin is succeeding. Because in this run, where many investors, large funds and small savers are selling their bitcoins, in return there is another group of investors, large and small, who are doing the opposite and taking advantage of this fall to buy bitcoins.
Let’s think that only 2 years ago Bitcoin was trading below USD 4000. And today we are very far from that figure. Because the community has grown. More and more companies adopt it as a means of payment, as a means of exchange and as a form of savings.
This phenomenon also occurs in the private sphere, where ordinary people, who do not come from the world of investments or the stock market, adhere to its fundamentals and become what we call “believers”, because they believe in the intrinsic concepts of Bitcoin. These concepts are its pillars, which strengthen it and make it so powerful.
This group of people, who are more and more, know that bitcoin is here to stay. They don’t think in dollars, they think in bitcoins. That’s why they don’t care if the price of bitcoin goes down or up, they see their virtual wallet and they only care how many bitcoins they have, not how many dollars those bitcoins are worth. And in this group of people, there are a lot of millennials who understand that this technology is the money of the future, and as the years go by these millennials grow up, increase their purchasing power and buy more bitcoins. That is why the future of bitcoin is a radiant sun. And many investors see this storm as the great opportunity to buy cheap bitcoins.
Crypto mining, an instrument to mitigate risk
One way to minimize risk, for those who are unsure about getting in right now, is to invest in mining. Because the prices of mining machines have dropped considerably, and it is a way of participating in the digital economy by reducing risk. I illustrate this concept with an example: If Pedro wants to invest in bitcoins, to earn money he has to buy bitcoins and wait for the price to rise. On the other hand, if you buy a mining machine, you do not need the price to go up to start making money, because if the price of bitcoin remains stable when you buy the machine, the machine generates income, regardless of whether bitcoin goes up.
Also, in case the price of bitcoin goes down, if Pedro bought bitcoins, his investment will turn negative. On the other hand, if he acquired a mining machine, even if the price of bitcoin drops a little, the machine continues to generate income, provided that the cost of energy is less than the profits that said machine generates. That’s why, In Argentina, where energy is cheap compared to the rest of the world, mining is a way to invest in bitcoins, reducing exposure to its volatility.
One option to approach crypto mining is Cryptogranjas, an Argentine company made up of Argentine engineers, economists and cryptocurrency experts that aims to achieve greater sustainability. These specialists created versatile investment alternatives in cryptocurrencies where they are dedicated to setting up, developing, operating and monitoring bitcoin mining centers, called CryptoGranjas, in Argentina and Paraguay. It has a laboratory where they develop advanced technology, which is used to put together new and innovative projects. It is also an official distributor of Bitmain and Avalon mining machines, the two most important brands in the world.
Bachelor of Business Economics from UNSW, Australia. He is the CEO of Cryptogranjas and an expert on issues related to crypto mining.
Source: Ambito
