One way to minimize the risk, for those who are not sure about entering at the moment, is to invest in mining.
Everyone talks about the cryptocrash and the fall of Bitcoin, but people are seeing the wrong movie. It is not about how much it has fallen, but how much it has resisted. That is because Bitcoin is effectively facing a storm that in other circumstances could have shipwrecked it, and it is going through it with admirable skill.
Storm Components
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. That is, they do not sell them out of mistrust of the currency, but because they are financially forced to do so.
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, and dragging down the rest of the cryptocurrencies, including Bitcoin, which had nothing to do with it.
The second event is related to 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 did not allow them to withdraw their money.
Consequently, 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.
Crypto Mining, Instrument to Mitigate Risk
One way to minimize risk, for those who are not sure about entering at the moment, 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 someone bought Bitcoins, their investment will turn negative. On the other hand, if they purchased a mining machine, even if the price of Bitcoin drops a little, the machine continues to generate income, as long as the cost of energy is less than the profits that said machine generates.
By Audy Castaneda
