Bitcoin
Bitcoin is falling — how low will it go?
Bitcoin is falling, but how far can it go?
The leading cryptocurrency has fallen more than 5.7% in the past week. Today, it has fallen below $57,000 as several wallets linked to the now-defunct cryptocurrency exchange Mt. Gox made small transactions. Persistent selling by the German government, now in motion another $75 million in Bitcoin for the stock markets, it also apparently scared off investors.
“The short-term outlook is somewhat pessimistic, but not extremely pessimistic,” said Basile Maire, co-founder of decentralized exchange D8X and former bank treasury specialist, said Decipher.
Macroeconomic conditions and the uncertainty clouds US elections is likely also playing a role in the current bearish sentiment. The Federal Reserve said yesterday that while inflation in the US market may be easing, it still remains well above the target rate, which could impact the chances of the Fed cutting interest rates this year.
The Fed’s extension of interest rate cuts is seen as bearish for risk assets such as Bitcoinas investors are generally less likely to move their dollars around the market under high interest rates. Still, some analysts see signs that the pain may be short-lived.
Maire says the Bitcoin options market, based on July expiries, shows that few market participants believe the price of Bitcoin will fall below $50,000 this month. Options “cluster between $50,000 and $60,000, with more volume near $60,000,” Maire explained.
This means that those who open options contracts, which are used to bet on the future price of Bitcoin, believe that Bitcoin is more likely to end the month near $60,000 than anywhere else. Other analysts have a different view.
“Bitcoin is more likely to fall to $51,500 than rise to $65,800,” said Alex Kuptsikevich, the FxPro senior market analyst, said Decipher. Kuptsikevich identified the $50,000 market as the “February consolidation area,” i.e. the price point where most Bitcoin purchases were made in February. He believes this could be Bitcoin’s next stop.
Digital asset firm 10x Research echoed the sentiment, suggesting that $60,000 was a key level for Bitcoin miners and buyers of Bitcoin spot ETFs. “Only ill-informed traders are willing to buy here. Breaking this support could trigger a sharp decline to the low $50,000s,” a report from the firm stated.
“How far BTC can go will largely depend on continued selling by large entities,” Justin d’Anethan, head of business development for APAC for the market maker Rock keycounted Decipher. “We may see some support in the lower $50,000 range, when Bitcoin was stuck between $50,000 and $52,000 in February.”
Some of the biggest investments in Bitcoin now come from ETFs following their approval in January. But in the world of traditional finance, Bitcoin sticks out like a sore thumb.
“Crypto ETFs belong to the most volatile investments in a traditional investment portfolio, which consists of bonds, diversified stocks, and commodities,” Maire said. “Therefore, whenever portfolio managers need to sell the riskiest assets, crypto is a likely candidate.”
While the short term may be bleak, analysts are more optimistic in the medium term.
“Despite the correction, the options market is still heavily biased towards BTC growth, as evidenced by the strong interest in long-term options in the $100,000 to $120,000 strike,” Kuptsikevich said. “According to Capital QCPthis points to the likelihood of a resumption of the rally by the end of the year.”
In other words, just hold on tight a little longer. And while this was certainly a winning strategy for early Bitcoin buyers, anyone who bought at the peak last March is certainly feeling the pain.
The opinions and views expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.