Fed's Pessimistic Outlook May Push Bitcoin Prices Below $80,000
The Fed's revised plan for fewer rate cuts than anticipated has spooked the financial markets, and Bitcoin (BTC) is no exception. It's experienced a loss in some of its gains following a remarkable 150%+ surge this year. The future looks promising with 2025 bringing a favorable government stance, escalating institutional interest, and the continuing trend (as in *Consider Buying, Selling, or Holding Bitcoin). A price of $150,000 is possible. However, the probability of a mid-term correction increases in light of the recent Fed announcement, becoming more noticeable. As a past lesson, a potential downturn could be harsh before it becomes better, as seen in Intel Stock's Potential Downside of $10?*
This was demonstrated in the markets with NASDAQ dropping 3.5%, which could impact Bitcoin's trajectory in the near future. The danger to this cryptocurrency is amplified by over-leveraged positions, the absence of intrinsic value, and vulnerability to market manipulation due to its limited supply. A 20% correction from current levels isn't unlikely. Bitcoin offers significant potential, but it comes with its share of risks. If you prefer higher returns with a smoother journey, opt for the *Premium Investment Portfolio*, which has surpassed the S&P and delivered over 91% returns since its launch.
Leveraged Positions & History of Market-Driven Crashes
Bitcoin investments are dominated by leveraged positions, which enhance its price volatility. When market conditions are unfavorable, over-leveraged positions are often liquidated, leading to a domino effect. Recently, over $2 billion worth of Bitcoin positions were liquidated in a single day, causing a 6% price drop. Covid-19 served as a reminder of leverage's negative repercussions, as Bitcoin's value dropped roughly 50% at the onset of the pandemic. Between February and October 2024, the Estimated Leverage Ratio, a measure of the average leverage used by traders, increased by 37%. The total value of Bitcoin futures contracts peaked at a historic high of $63 billion in November 2024.
Leverage can be a double-edged sword by significantly increasing an asset's downside risk. There's ample historical evidence to support this. Between December 2017 and 2018, Bitcoin's leverage amplified its crash as the bull market's momentum waned, triggering a 80% price decrease. In 2020, as global markets, including cryptocurrencies, suffered due to Covid, Bitcoin's steep price decline forced heavy liquidation of over-leveraged positions, amounting to $1 billion in a day. Shortly after, China's crackdown on Bitcoin Mining triggered another price plunge. In November 2022, a Bitcoin crash was instigated by Almeda Research and FTX's insolvency-driven liquidity crisis.
The pressure to offload over-leveraged positions hinders investors' ability to navigate bearish market stretches. The liquidation of such positions can precipitate a chain reaction leading to a price collapse. Despite cryptocurrencies' impressive performance in terms of returns over the years, consistently surpassing broader markets — in good times and bad — is a challenging undertaking. In contrast, the Trefis Premium Investment Portfolio, with a mix of 30 stocks, has outperformed the S&P 500 annually over the same timeframe. What's the reason behind this? Stocks in the HQ Portfolio consistently delivered superior returns with reduced risk relative to the benchmark index; a smoother ride, as shown by HQ Portfolio performance metrics.
Invest in Trefis *High-Performing Portfolios*
Despite the Fed's revised plan leading to a potential mid-term correction in Bitcoin's price, the cryptocurrency still holds promising returns for the future. However, the over-leveraged positions in Bitcoin investments increase its vulnerability to market manipulation and price volatility, making it susceptible to harsh corrections during unfavorable market conditions.
In light of Bitcoin's high risk and potential for significant returns, investors seeking a smoother journey with higher returns might consider the Premium Investment Portfolio, which has delivered over 91% returns since its launch and consistently outperformed the S&P 500 annually.
