Bitcoin and other cryptocurrencies have been in free fall. But just how low will their prices actually go?

Bitcoin, which hit a high of $68,000 per coin in November, has plummeted around 70% and sat below $21,000 on Monday. Ether, the second largest cryptocurrency by market value after bitcoin, hit a high near $4,800 before plunging to around $1,200 now. Across the board, cryptocurrencies and tokens have taken a hit.

Of course, crypto isn't alone. Stocks entered a bear market this month, and there's a ton of fear in the bond market. But the crypto market is experiencing an especially startling drop from where it was last year, when the market's value skyrocketed from $965 billion to as much as $2.6 trillion.

Crypto prices have always been based on what investors believed it was worth at the moment. So why do investors appear to be losing faith?

"The reason that there is so much downward pressure on crypto prices right now is the same forces that shaped the rise of crypto and the reason people were so excited about it in the first place," says Madeline Hume, senior research analyst at Morningstar. "It is a really idiosyncratic asset. That helped crypto on the way up and it's hurting it on the way down."

What happened to the crypto market?

For the last few years, financial markets benefited from stimulus money from the government and near-zero interest rates, which allowed businesses and consumers to borrow and spend money more easily and take a shot on risky assets like cryptocurrency. That stimulus money is gone now, and the Federal Reserve recently raised interest rates 0.75% — its largest increase since 1994 and third rate hike of the year.

“We’re seeing so much of an unwind here on every risky bet, and crypto was the riskiest bet that existed," says Edward Moya, senior market analyst at multi-asset broker OANDA.

Additionally, crypto exchanges will often let traders who want to take a bigger position in a cryptocurrency collateralize their purchases with other types of crypto. But those who engage in this activity, called margin trading, risk their investments automatically liquidating when the price of a coin like bitcoin decreases to below the requirement to ensure that ongoing collateralization. In other words, exchanges will force-sell their clients' positions when the crypto market takes a downturn.

There's also simply a lot of mistrust in the crypto market in general. Earlier this year, the crypto luna and its associated "stablecoin" terra collapsed, wiping out billions of dollars. More recently, one of the largest crypto lenders, the Celsius Network, paused withdrawals, swaps and transfers between accounts citing extreme market conditions.

While crypto prices were already tumbling, the Celsius Network event really took a lot of people by surprise and accelerated the selloff, Hume says.

How low can bitcoin prices go?

The stock market has a contrarian community of value investors, who look for opportunities to buy when others are selling and scoop up investments that appear to be underpriced. Think Warren Buffet, who is known for taking the opposite of the momentum trade. (Momentum trading refers to the strategy of buying assets when they're in an upwards trend and selling them at their peak, while value investing involves picking assets that appear to be trading for less than their intrinsic value.) The legendary investor has famously advised that investors should be fearful when others are greedy and greedy when others are fearful.

But there is no comparable group of contrarian investors in the crypto community, Hume says. Right now, there's a huge momentum trade towards selling crypto, and there is no large community saying "hey, the fundamentals are here and now is the right time to buy," Hume says. "Everybody is so worried about what the next domino to fall is."

Bitcoin's actual value may be unknowable. But while nearly $70,000 per coin was probably too high a value, $20,000 is likely too low, says Chris Brendler, senior equity analyst at D.A. Davidson Companies, a capital market company.

He came to that conclusion based on looking metrics, like the size of the bitcoin network, including the number of transactions and users.

"The levels of activity and the political, corporate and institutional landscape being so bitcoin-friendly and more willing to at least listen today makes me think it's close to a bottom," Brendler says. "But you never know."

Could bitcoin's price drop to $0?

It's very unlikely the price of bitcoin — the largest and most popular cryptocurrency — will go to $0 per coin, Hume says. That's because use cases have been established, including for the aforementioned collateral. Bitcoin has also, for better or worse, become a gateway cryptocurrency for a lot of traditional finance, she adds. For example, El Salvador became the first country to adopt bitcoin as national currency in 2021, and Fidelity Investments recently announced the firm is allowing bitcoin in 401(k)s.

That being said, it is possible for peoples' investments in bitcoin and other cryptos to go to zero even if the price of those assets themselves remain positive, Hume says. How? There could be cases of lenders that default without proper guarantees for their investors and improper security.

Most recently, Harmony, which allows people to exchange coins between various blockchains, tweeted last week that hackers had stolen $100 million.

Is this a buying opportunity for bitcoin?

When markets crash, there is an opportunity to buy at a lower price.

Bitcoin is at levels where it's starting to look attractive, Moya says. He thinks that we'll probably see bitcoin trade around a key level like $20,000 per coin for some time. For ether, that level may be $1,000.

"There's still so much potential and opportunity in the crypto-verse that you're not going to see a complete abandonment of this space despite these painful losses," Moya says.

But if you want to take advantage of the low price, you have to be careful. Crypto lacks fundamental valuations and runs on investor sentiment — and that's very difficult to anticipate and time. Financial advisors recommend not investing money in risky assets like cryptocurrency unless you're willing to lose. Some say to allocate no more than 2% to 5% of your portfolio to these digital assets.

For those who want to invest, take a staggered approach, Moya suggests. Perhaps that means investing a small amount when the price is at $20,000 per coin for bitcoin, a bit more at $19,000 and more at $18,000.

But if you can't stomach a 50% drawdown? Steer clear of crypto entirely.

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