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One of the biggest changes in the crypto community in 2020 is the keen adoption of Bitcoin by institutional investors. Companies such as Grayscale and JPMorgan began to invest in Bitcoin when Bitcoin was trading at 10,000 USD. In less than one year, the price of Bitcoin has increased five times. However, Bitcoin saw a steep sell-off last week, correcting 20%. When the market goes down rapidly, institutional investors or whales may dump their coins to cash in profits. In such a volatile market as cryptocurrencies, investors are advised to take measures to control risks.
Short term outlook: KOLs sending out warnings
Guggenheim’s Scott Minerd warns that Bitcoin could plunge to 20,000 USD.
“Given the massive move we’ve had in bitcoin over the short run, things are very frothy, and I think we’re going to have to have a major correction in bitcoin,” said Scott. The Global Chief Investment Officer of Guggenheim believes that massive corrections are on the way as the crypto market becomes more frothy.
JPMorgan Chase also warns investors to be cautious as its analysts see bubbles in Bitcoin that could lead to further losses. Their focus is on the futures market.
Medium and long term outlook: central banks cutting exposure of gold and exploring CBDC could threaten Bitcoin
Central banks have been using gold reserves as the basis of their monetary systems, but things are changing. According to the World Gold Council (WGC), the central banks turned to net selling in January and February for the first time since October, reducing their exposure by about 16.7 metric tons.
At present, over sixty central banks are researching CBDC, including retail tokens for people and wholesale applications for financial institutions. In short, CBDC is a digital currency issued by central banks and priced in national account units, just like traditional fiat. On Thursday, Norway’s Central Bank said that it is ready to start testing technical solutions for CBDC over the next two years.
The adoption of CBDCs will gradually threaten bitcoin’s status, which fell below 50,000 USD for the first time since March last Friday. The fall in price caused its dominance in the cryptocurrency market to sink below 50%. Meanwhile, Ethereum reached an all-time high of 2,798 USD this week. Bitcoin’s function as a financial asset has been impacted. In addition, its drawbacks will also pose a threat to its status as a digital currency. Hence, Bitcoin’s price may continue to fall.
Investors’ focus shifts to the futures market
In view of the possible price plunge, more traders sell their bitcoin to cover losses. But this is not an ideal way.
Futures trading can maximize profits in volatile markets. Futures trading enables traders to profit from both directions and hedge losses when the price of bitcoin falls.
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