Bitcoin Plunges to 18-Month Low. Should You Buy?

The lead crypto has reached its lowest point since December 2020.

Crypto investors woke up to more bad news this morning after what had already been a rough weekend for the industry. Bitcoin slipped below $23,000 -- falling over 18% in 24 hours and almost 25% in the past seven days, according to CoinGecko data. Other altcoins fell even further, with Ethereum (ETH) and Solana (SOL) each down more than 30% in the past week.

Bitcoin has been hovering around the $29,000 to $30,000 mark for the past month, so today's drop marked a significant downward break. Indeed, it more than wipes out all of last year's gains. The lead crypto is now at an 18-month low, and many analysts fear it could fall even further.

What's causing Bitcoin's latest slump?

In what's now becoming an all-too-familiar scenario for crypto investors, the main drivers behind plummeting prices are wider economic conditions and jitters caused by decentralized finance instability.

1. Inflation is still rising

The most recent consumer price index (CPI) figures showed that inflation has increased rather than decreased, as various bodies had expected. The CPI for May was up by 8.6% year over year, sparking fears that the Federal Reserve will need to take even more drastic measures to curb inflation.

The Fed increased rates by 0.50% last month, which was the largest rate hike since 2000. Some economists now fear it might opt to raise rates by 0.75% following its meeting later this week. The Fed's economic tightening measures have been a major driver in crypto's stuttering performance this year. Both stocks and crypto prices have been hit by rising interest rates and fears of a recession.

2. Celsius pauses withdrawals

Popular defi lender Celsius announced today that it would pause all withdrawals from its platform. Celsius said it's making the move because of "extreme market conditions." In a blog post, the company said, "We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations."

The company said funds on the platform will continue to accrue interest and that its focus was on protecting assets. However, given that Terra's (LUNA) collapse is fresh in investors' minds, it's unsurprising that the announcement sparked additional uncertainty and dented investor confidence.

Should you buy?

There were points last year when it seemed as if crypto prices could only go in one direction. Investors piled into the market, fearing they’d miss out on the next big thing and pushing prices up. Unfortunately, we are now in a very different economic climate and it isn’t clear what will happen next.

Some investors may view Bitcoin at $23,000 as a bargain, especially if they think it could return to its November high of around $68,000. Indeed, Ark Invest predicts the price of Bitcoin could go to $1 million by 2030. However, there are no guarantees that it will regain its previous highs or go on to set new records. Bitcoin could perform well in the coming 10 or 20 years, but it could also collapse completely.

There are several factors in play that could push Bitcoin even further down in the near term. In addition to market concerns about a rising cost of living and potential recession, there’s also the impact of increased regulation to take into account. We don’t know exactly what form it will take, but we do know that regulatory changes are coming and will affect the whole industry.

The other thing to consider in deciding whether to buy Bitcoin is how well you’re doing on your other financial goals. For example, if your emergency fund isn't large enough yet to cover three to six months of living expenses, or you aren’t on top of your retirement savings, these need to take priority. Focus on the financial bases that will help you build long-term wealth before spending money on high-risk assets like crypto.

Buying Bitcoin at a discount is only worthwhile if you believe in the long-term potential of crypto and you have your financial ducks in a row. Make sure you understand the risks and only invest money you can afford to lose. The ideal is that you position yourself to benefit if the crypto industry does take off again without facing financial ruin if it falls to nothing.