Bitcoin, at the time of writing, was trading at a 112.5 percent premium to its price at the beginning of the year, a 282.5 percent premium to its lowest price in the year, and 28 percent off its highest price ever. Even with all the fervor around the price rally, one question needs to be asked – So, what do you do when the music stops?
It’s no doubt that like this year, this price rally has been like no other. Starting from the drop to Bitcoin’s[2] lowest price point in over a year in March, and now to its highest in over two years, it’s been a roller-coaster ride. Hence, it would bear prudence to understand how and when, not if, the price unwinds from here. More importantly, will this ‘unwinding’ normalize the profits or eradicate them?
According to a report by blockchain analytics firm Chainalysis[3], there are three possible ways the market could unwind.
Certain uncertainty
The first reason to ‘unwind’ is being spurred by the catalyst that is 2020, with its raving uncertainty. If broader financial markets move in response to negative or deadlocked news like that of the COVID-19 vaccine or the U.S elections, this uncertainty will only fuel the price rise of Bitcoin. Why? Because an asset that isn’t controlled by anyone and is measured by something that is rapidly getting devalued (the US dollar) is likely to increase in price.
Rationale-less
Second, if Bitcoin’s price is fueled by nothing, the only way isn’t up or down, it’s out, as in out of the markets ASAP. If the price rise continues and reaches a point where investors are willing to sell their holdings, a sell-off could ensue.
One of the main reasons the price dropped
