The consequences of Bitcoin’s price plummet is cause for concern among traders and investors alike, as it adds a new dynamic to perception. The “only up” rhetoric can no longer be sustained as volatility once again reared its head in the market. Having reached an all-time high in mid-April, Bitcoin now finds itself trying to cope with its newly established price range between $33,000 and $40,000.
The erratic, and at times explosive nature of cryptocurrency is already its most primal feature as trading prices frequently fluctuate between $30,000 and $42,000 in a single day. In contrast to the stock market, where volatility is minimal, cryptocurrencies possess a unique flair and appeal for investors. However, with market prices fluctuating, as Bitcoin rejected the 200-day moving average, while also facing fierce resistance at the $40,000 level, indecision is rife throughout investor circles.
Instability, or Just Plain Fear?
Bitcoin’s shake-up has stirred uncertainty for many retail and casual retail investors, giving way to those who can adapt to the significant and common price fluctuations. In a letter to investors, Pomp highlighted that selling behavior has changed in the past couple of months, with emphasis placed on Chinese miners whose BTC sell orders had increased. This was triggered by China’s aggressive stance towards mining farms in the Inner Mongolia and Sichuan region.
The prospect of a new crypto winter is gruelling for many traders, especially for those who experienced the bull runs of 2017 and 2018. The high volume of liquidation that occurred on May 18th, where over 800,000 trades worth $8 billion were liquidated, may result in many reluctantly endeavoring towards new trading opportunities. On a similar line, trade volume and open interest futures remain low. In a 2018 article, a trader highlighted how, in a “wait-and-see” scenario, it’s best to “seriously reduce positions in the market” as trading can move at a rapid pace and traders can incur “devastating blows” as a result.
A “wait-and-see” moment occurs each time a market reset occurs, as it creates a mandated balance. As emphasized in February 2021, when the price of Bitcoin wavered under $50,000, traders were faced with a similar decision. At that time, however, sentiment towards crypto was more positive as corporate discourse was in favor of Bitcoin. Despite uncertainty among retail and institutional traders, Anchorage Digital points out that some institutional investors see the current price as ideal for increasing their crypto holdings.
On the Flipside
- Market corrections are healthy because it creates a stable base and positions any trade for a higher upswing in momentum
- Hindering the digital-gold storyline may indicate a slow bleed session for Bitcoin.
- Traders are looking for a clear indication to justify increasing trade volume and to regain confidence in the market
- The fear and greed index is at the edge of “extreme fear,” with a score of 10 out of 100.
A Regulatory Setback
Conflicting views towards cryptocurrency, fueled by “the environmental issue” as well as Bitcoin’s utility, have spurred constructive debate. Divergences in the media space have contributed to the current period of uncertainty, as attitudes towards Bitcoin are heavily influenced by the media. A WSJ article argues that BTC has briefly showcased usability; however, Elon Musk distancing himself from BTC, as well as BTC being used in resolution of the Colonial Pipeline ransomware issue, have altered the public’s perception.
In addition to all of this, the question of regulation has brought forth a decade-old debate regarding digital currencies. The Bank of Japan’s governor, for instance, has reiterated Bitcoin’s volatility and lack of usability in the market. Furthmore, China has also renewed its governmental stance on cryptocurrencies, which prohibits financial entities from accepting or transacting in cryptocurrencies. While this recent news currently paints a pessimistic image, it does point towards a need for regulation. Luke Lloyd, from Strategic Wealth Partners, highlighted that such governmental regulations are not necessarily wrong, however an outright ban on crypto could be detrimental to the future of essential blockchain innovation.
Existing concerns on the crypto market pinpoint Bitcoin’s volatility as a major factor for unrest, but Luke Lloyd further argues that this same volatility will stabilise to a greater degree as more investors gain interest in investing into crypto. This echoes evidence from 2017, but in contrast to then, Bitcoin’s instability has sharply declined since the ICO boom. Bitcoin’s image has been altered to be a polluting innovation, hindering its strength of drawing more institutional investors. Despite these existing setbacks, reports from Chinese reporter WuBlockchain and Anthony Pompliano emphasize that investors are accumulating and consider Bitcoin to be a long-term investment, rather than a tool for swing trading at this time.