Bitcoin and Crypto Markets to Fall by Another 20%

The aftermath from the stock market crashes around the world caused by the COVID outbreak resulted in record numbers of new participants entering the market. It also created an influx of inexperienced investors into Bitcoin and the cryptocurrency market. Many of these investors had either never invested before or had very little knowledge and experience, and now with the market falling these same investors are really being tested.

It is possible to make money from Bitcoin if you know what you’re doing

Unlike the stock market, those who plunge into Bitcoin and other cryptos are largely unaware of exactly what they are buying or the risk they are taking. If you remember, I predicated back in February this year that Bitcoin would likely fall around 45 per cent from its current levels and around 70 per cent from its all-time high. Since Bitcoin made an all-time high in October last year at $69,375, it has fallen nearly 60 per cent in price and is looking like it is on its way down to $20,000 or below.

Investors need to understand that when buying Bitcoin they are not buying an asset and there is nothing backing the currency. The only thing that makes the price of Bitcoin rise or fall is the perceived demand by those who choose to trade it; therefore, there is nothing to value Bitcoin on other than what someone believes its worth.

Despite the high risk nature of Bitcoin, you can make money by investing in these markets provided you know what you are doing and the risks you are taking. Currently the price of Bitcoin is back to where it was nearly 18 months ago and is getting cheaper. I expect we will continue to see further falls for the next few months and for price to fall at least another 20 per cent if not more.

What were the best and worst performing sectors last week?

The best performing sectors included Information Technology up 5.04 per cent followed by Materials up 3.65 per cent while Industrials and Utilities were up 3.52 per cent. The worst performing sectors included Consumer Staples down 3.45 per cent followed Energy down 0.80 per cent and Healthcare down 0.74 per cent.

The best performers in the S&P/ASX top 100 stocks included Allkem Limited up 17.57 per cent followed by Pilbara Minerals up 15.38 per cent while Aristocrat Leisure, Lynas Rare Earths and Block were all up over 11 per cent. The worst performing stocks included Metcash down 9.53 per cent followed by Magellan Financial Group down 6.46 per cent and Wesfarmers down 6.44 per cent.

What's next for the Australian stock market?

Last week was interesting given that the market rose for the first three days only for it to fall on Thursday eroding all of earlier gains. In a positive sign, the market rose on Friday to close the week up 1.04 per cent. While the market volatility is continuing, it is not unexpected and I believe it may continue for another couple of weeks. That said, this doesn’t necessarily mean the market will be bearish over that time.

While I still believe most, if not all, of the fall has already occurred, this is unconfirmed, which is why I continue to urge everyone to be patient. If our market is to return to being bullish, price needs to hold above the recent low on 12 May at 7,157 points. If it can do that in the short term and then start to rise into the end of the month, it is likely we have seen the end of the current bearish move.

However, if our market falls below the low of 12 May in the short term, it is still possible for the All Ordinaries Index to fall below 7,000 points and possibly to around 6,800 points. Again, until a direction is confirmed, it is wise to sit back and wait until the dust settles.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.