The price of Bitcoin (BTCUSD), which set a new record high of nearly $ 65,000 in April, is baffling investors.
The cryptocurrency fell below $ 30,000, a price it broke through on Monday night early this year, leading analysts to predict the start of a bearish cycle. Its price drop, measured over a 24-hour period, was not that large in percentage terms. But the $ 30,000 figure itself is seen as a key level of price support by institutional investors. This barrier could determine the cryptocurrency’s price path in the short term, they say.
Key points to remember
- The price of Bitcoin fell below $ 30,000 on Monday but rebounded this morning.
- The fall below $ 30,000 has made some investors question whether the cryptocurrency will enter a prolonged bear cycle, as in the past.
- Several reasons have been put forward to explain the fall in Bitcoin prices.
- Estimates of future Bitcoin prices range from a low of $ 10,000 to a high of $ 50,000 by the end of this year.
However, the stay in the price of Bitcoin below $ 30,000 was short-lived. As of 1:06 p.m. UTC this morning, the cryptocurrency had rebounded to $ 31,547.88, a 6.23% jump from its price 24 hours ago. After slipping to a low of $ 1.174 trillion on Monday, the total market cap of the cryptocurrency markets has also hit $ 1.27 trillion at the time of writing. With a market cap of around $ 557 billion, Bitcoin accounts for about half of the total valuation of cryptocurrencies and sets the price momentum for other coins in the ecosystem.
Among the top four cryptocurrencies by market cap, the price of Ethereum (ETHUSD) fell 9.6% to $ 1,722.81 on Monday before rising to $ 1,904 this morning. Binance Coin (BNBUSD) was hammered with a 12% price drop during the same period on Monday. As of this writing, it was up 7.5% to $ 284.95 from its price 24 hours ago.
While volatility is normal for crypto investors, the recent Bitcoin price turmoil has occurred during a period of cryptocurrency spotlight. Bitcoin’s price movements mirror those of the broader stock market. But its returns are less than stellar compared to other places of investment. For example, the returns of the S&P 500 are estimated at 15% until 2021. Bitcoin had returns of around 2% after falling below $ 30,000.
In a low interest rate environment where investors are investing money in risky assets, fluctuations in Bitcoin’s price could also have implications for future flows of money into cryptocurrencies.
Why has the price of Bitcoin fallen?
It is difficult to pinpoint the exact cause of the decline in Bitcoin fortunes. Analysts and commentators have cited a series of events over the past two months that have successively driven prices down.
For example, the price hit its first blow after Tesla, Inc. (TSLA) CEO Elon Musk tweeted that his company would not buy more Bitcoin for its cash due to concerns about the impact. environmental impact of cryptocurrency mining. Tesla had announced a $ 1.5 billion investment in the cryptocurrency in January. Then, China’s crackdown on Bitcoin miners, and its government’s subsequent warnings to fintech and banking institutions, caused further damage to the price.
The tightening of a regulatory stranglehold around a largely unregulated cryptocurrency ecosystem is also cited as a possible reason. The European Union (EU) is considering making crypto transfers traceable by requiring financial institutions to collect information on senders and recipients. The measure could align crypto with regular transfers and negatively affect its attractiveness as a pseudonymous asset free from government control.
At a Senate hearing last week, Fed Chairman Jerome Powell said cryptocurrencies had “completely failed” to become a form of payment and stablecoins lacked a “framework. appropriate “in their current form to become a safe asset.
A consequence of this is that the major players in the crypto ecosystem are starting to feel the heat. The New Jersey Bureau of Securities has served a cease and desist order on BlockFi, a crypto lending company, from ceasing accepting customers for its interest accounts.
The events fueled investor fears about an already volatile asset class and triggered a sell-off similar to what occurred in the stock market.
“There’s a lot of unwinding going on. A lot of deleveraging. And that’s generally not good for prices in the short term,” said Mark Yusko, CEO of Morgan Creek Capital, a company that offers Bitcoin funds to investors. , in a conversation with online publication Coindesk.
Where does the price of Bitcoin go from here?
Investor deleveraging has the potential to cause further price declines and volatility in Bitcoin’s low-liquidity ecosystem. Given this morning’s price movement, arguments can be made for a quick rally and another bull run. But the odds don’t seem bright.
Institutional investors, who hailed Bitcoin’s potential as an alternative asset at the start of this year, are already leaving or have left crypto after raking in profits.
One example is UK investment firm Ruffer Investment Management, which has invested 2.5% of its $ 27 billion portfolio in Bitcoin. The company made a profit of $ 1.1 billion after selling its holdings near the top of the cryptocurrency price trajectory for this year. “In the short term, at least, Bitcoin exhibited the characteristics of a risky and speculative asset and, therefore, no longer fulfilled the portfolio role that we intended as a protective and diversifying asset,” the firm wrote in a recent report.
Other indicators also flash red. According to reports, traders are accumulating out-of-the-money put options for Bitcoin at $ 22,000 and $ 20,000 which will expire on December 31. This means that they expect Bitcoin prices to drop by the end of the year.
Glassnode, a crypto market intelligence firm, said institutional demand for Bitcoin remains low for all regulated products, such as funds and exchange traded products. Investment firm Grayscale’s Bitcoin Trust (GBTC), arguably the most successful Bitcoin investment product on the market today, is discount trade more than 10% in the cryptocurrency spot market.
Certainly, Bitcoin’s history is littered with cases of bursting price bubbles. For example, its price hike in 2017, when the cryptocurrency set a price record, gave way to a prolonged crypto winter that spanned nearly three years.
Estimates for future price action
Given the spotlight on crypto, the main questions this time around relate to the length of its last price swoon and the relevant price supports from which Bitcoin will return. There are plenty of answers.
Vijay Ayyar, head of Asia-Pacific at cryptocurrency firm Luno, told Bloomberg that the price of Bitcoin will be between $ 20,000 and $ 40,000 for the remainder of the year. Kate Stockton, founder of Fairlead Strategies, told CNBC that the latest price drop could be a “shakeout” or “false breakdown” that eliminates “weak” Bitcoin holders. If the cryptocurrency can shake these investors within a week and hit $ 34,500 the upper limit of the price support level calculated by Stockton, then it could reach a higher level. Delano Saporu, founder of New Street Advisors, predicted a floor price of $ 17,000 for the cryptocurrency in its latest trajectory in the same article.
Investment firm Guggenheim Partnerss Scott Minerd, who estimated a price of $ 400,000 for Bitcoin earlier, beat him. Minerd told CNBC in July that the cryptocurrency could crash into a range between $ 10,000 and $ 15,000 and trade sideways for a few years before launching another bull run.
However, Morgan Creek Capital’s Yusko remains excited about the prospects for the cryptocurrency. The reason for his optimism has to do with users, developers and investors who have turned to digital currency in recent years. He predicted a price target of $ 50,000 for Bitcoin by the end of this year and $ 100,000 by the end of 2022. The reason for his optimism is that the current price of Bitcoin has nothing to do with it. to do with the future value of the underlying network. “[Bitcoin] the price is a liar, ”he said.
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