Bitcoin dropped below $30,000 on July 20, breaking below a trading range that had held for the previous four weeks. Analysts fear that a deeper price decline may be on the cards.
Bitcoin had appeared somewhat rangebound between US$30,000 and US$40,000 since mid-May. Analysts noted that this mimicked a pattern last witnessed in 2018 when Bitcoin went sideways between US$5,900 and US$7,400.
What Could Be Driving the Fear?
From an investment perspective, crypto doesn’t exist in a vacuum. Data, trends and sentiment experienced in traditional markets will necessarily impact what happens in crypto. Therefore, one argument has been that the digital asset space is currently facing strong macro and regulatory headwinds.
At present, investors in traditional markets are pulling away from risky assets (such as Bitcoin) on the back of weaker monetary and fiscal stimulus, in addition to rising Covid-19 cases, including those caused by the Delta variant. As US government stimulus declines, Wall Street is “seeing too much froth” and “selling the best performing assets such as Bitcoin” according to Edward Moya, a senior market analyst at Oanda.
On the regulatory side, central banks have keyed in on crypto and, more specifically, stablecoins. The US Federal Reserve is currently putting stablecoins under regulatory scrutiny and just days ago, the People’s Bank of China called cryptocurrencies “mostly speculative instruments” that “pose potential risks to financial security and social stability”.
Other Factors Feeding the FUD
These concerns are in addition to ongoing environmental, regulatory and “crypto is for criminals” FUD, not to mention the persistent cries from mainstream investors that Bitcoin will never be a store of value and will eventually be worth zero.
For the moment, institutional and retail interest has cooled off, at least according to “Bitcoin” Google searches.
While most investors have a strong sense of where Bitcoin is going over the next five to 10 years, the near term is far less certain. In April, Bitcoin easily supported prices over US$50,000 but at present appears to be struggling at US$30,000.
For now at least, it isn’t clear whether a breakout is more likely than a breakdown. Only time will tell.
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