With Bitcoin now mired in the midst of its most severe decline in recent memory, experts are sifting through a wide variety of signs to determine the moment at which further investors may start to pull out of the market entirely.
Bitcoin, which has lost around 20 percent over the course of this week, reached a low of $21,932 on Tuesday. This places it solidly below the average investor cost base, which UBS estimates to be $23,500. This indicates that prices have dropped enough to provide a challenge to even long-term investors, who, up until this point in the downturn in 2022, were generally profitable with their investments.
Even the most devoted supporters of cryptocurrencies are feeling the effects of the bear market, according to James Malcolm, director of foreign exchange and cryptocurrency research at UBS. Equally, relief as well, since we are now in full-blown panic mode, and the bar for a hawkish Federal Reserve this week is very high.
Miners’ businesses have been under “significant pressure” because high energy costs and capex commitments. For example, over the previous month, their sales corresponded with a drop in price. Malcolm remarked that there was very little reassuring information available to counteract such worries.
The price of Bitcoin dropped by 17 percent at the beginning of the week, bringing it to its lowest level since the year 2020 came to an end. The MVIS CryptoCompare Digital Assets 100 Index, which measures 100 of the most popular tokens, plunged as much as 17 percent, likewise reaching its lowest position since December 2020. This index analyses cryptocurrencies. Other cryptocurrencies were also in the dumps.
At the same time, the ProShares Bitcoin Strategy ETF (ticker BITO) and the Valkyrie Bitcoin Strategy ETF (BTF) both had losses of up to 20 percent, which was the highest level since the funds’ launches at the end of 2021. The price of a share of stock in MicroStrategy Inc. dropped by more than 25 percent.
In part, investors in digital assets have been spooked by the crypto-lender Celsius Network Ltd. pausing withdrawals, swaps, and transfers. However, the broader market remains under pressure after an inflation print came in hotter-than-expected the previous week, which indicates that the Federal Reserve will need to be aggressive in its attempts to cool rising prices.
An interview with Fiona Cincotta, a senior financial markets analyst at City Index, revealed that she believes there will be other negative developments in the future. “A drop to the $20,000 range is something that we have to keep an eye out for.”
Those who follow the markets have been preoccupied with determining who would suffer the most as a result of this year’s slump. Just over the previous year or two, a large number of regular investors as well as institutions have entered the market. Bitcoin’s price is now fluctuating around the level it was at in December 2020.
The number of anonymous Bitcoin addresses that are “in the money,” which refers to those who purchased their holdings at prices lower than today’s, has hit lows that have not been seen since March 2020. Analysts at Bequant think this indicates “capitulation” on the part of Bitcoin users. Other analysts, such as those working for Glassnode, believe that the market is likely to see a “full-scale capitulation scenario” between the levels of $20,560 and $23,600.
The chief strategist at Interactive Brokers LLC, Steve Sosnick, is keeping an eye on the range of $20,000 to $21,000 for the Bitcoin price because MicroStrategy, a significant Bitcoin holder, may have to sell some of its coins at that time. In an interview, he said that “we’ve taken out many of the past support levels that we would have built since the run-up in late 2020.” This is because “we’ve taken out many of the prior support levels.” “When there’s this thought of a looming maybe margin-call driven seller out there, sure, the low $20,000, that’s a genuine line in the sand,” said the trader. “That’s a real line in the sand.”
In its most recent cycle, Bitcoin reached a high of $19,041 in December of 2017. According to Matt Maley, who serves as chief market strategist at Miller Tabak + Co., keeping an eye on that level will be key. It creates the “old” resistance level, which means that it is now the most important support level. “It exploded higher once it broke over that barrier level in 2020,” the analyst said. Therefore, it must maintain that level while it is in this downturn,” he added.
Malcolm of UBS cites a number of attacks and outages, in addition to the fact that authorities are becoming more serious about the cryptocurrency business. “None of this is to say that crypto is going to sink into oblivion,” he stated after reiterating his previous statement. “However, what it does indicate is the way in which the future will have a totally different appearance. Participants will be required to cooperate with preexisting financial service providers and accept the need for increased regulation.
Chiente Hsu, co-founder and CEO of ALEX, a platform for decentralised finance, sounds an upbeat and optimistic note. ” The cryptocurrency market is a very volatile one. “As a result, we are considerably more sensitive to the highs and lows,” she said. “Without a doubt, there will be ventures that fail, but cryptocurrency won’t pose a systemic concern.”