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Why bitcoin fell and what’s next


Bitcoin is now worth about $ 56,000, but less than a week ago, the cryptocurrency renewed its historic $ 64,000. The highs coincided with the debut on the stock market of the largest American cryptocurrency exchange Coinbase Global Inc., which fueled enthusiasm for everything related to cryptocurrencies.

While some investors argue that the coin is overvalued, others see the fall as an opportunity to buy and strengthen nerves. Even the Dogecoin token, which was created as a joke, has grown by 20%.

What triggered the decline?

As is often the case – especially with opaque assets like cryptocurrencies, where it is often unclear who is selling and who is buying – there is no single answer. Analysts cite a variety of reasons.

Regulatory concerns

As digital assets attract more retail and institutional investors, there is growing interest from regulators around the world.

On Friday, the Turkish central bank said it would ban them as a payment method from April 30 and would prevent payment and wire transfer companies from processing transactions involving crypto platforms.

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Over the weekend, rumors also surfaced on the Internet that the US Treasury was ready to take tough measures to combat money laundering through digital assets. The Finance Ministry declined to comment.

Other types of regulatory pressures include plans by central banks to create digital currencies such as the Chinese digital yuan and a ban on cryptocurrency mining in Inner Mongolia, which has long been popular in the industry for its cheap energy.


“We will see regulation tighten,” Eva Ados, chief investment strategist at ERShares, told Bloomberg TV, urging investors to be careful. “We believe that volatility will become even higher in the future.”


Overheat

Any strong rally allows the market to outpace events. So says Galaxy Digital founder and longtime cryptocurrency supporter Michael Novogratz, who tweeted that he considers the retreat to be a healthy correction.

Specific factors

Other factors may add to the list. Industry news site CoinDesk reported on Saturday that power outages in some regions of China have severely limited bitcoin mining capacity, reducing the overall computing power of the cryptocurrency network.

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Do not forget about time binding.


“Bitcoin is going crazy on weekends because it is one of the few markets open to trade,” said Kyle Rodda, market expert at IG, Melbourne. “And he lost some customer support.”


How significant are these falls?

Given the frequent warnings of speculative mania in cryptocurrencies, based on key financial indicators, any significant drop brings back memories of the 2017 crash. Bitcoin then fell from more than $ 19,000 to below $ 4,000 by the end of 2018.

While the current pullback is significant, it is not of this magnitude. Bitcoin is still 93% higher than in January. Volatility is common in this asset class, with Sunday’s intraday fall of 15% just the biggest since February.

Ether, which fell as much as 18% and closed 9.4% lower on Sunday, is up more than 200% this year.

Price predictions

The problem with any cryptocurrency price predictions is the lack of sufficient fundamentals on which to make predictions. Much boils down to speculation about whether institutional investors will buy and whether Bitcoin whales will sell. According to Flipside Crypto, less than 2% of accounts control 95% of the total supply. This means that one large holder can have a huge impact on a still illiquid market.

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One of the key differences from the prolonged collapse of 2017 is that a wide range of institutional investors now have a certain share in the market. It was announced last week that cash management firm Brevan Howard Asset Management has also started investing in digital assets.

Now Morgan Stanley and Goldman Sachs Group Inc. plan to offer clients access to crypto investments, which is another sign of growing interest from wealthy people. In January, analysts at JPMorgan Chase & Co. suggested that bitcoin could reach $ 146,000 in the long term, and they recently cut their forecast to $ 130,000.


“There is a lot of passion on social media about the likely path of cryptocurrency,” Pepperstone’s Chris Weston wrote in a note to clients. “But there is clear support in the drawdowns.”


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