Bitcoin’s trading action has been wild lately, even by crypto standards, and the drama is not over yet
Bitcoin is still in double-digit intraday movement after briefly halving its value last week, and Wall Street strategists say this insane run won’t be over anytime soon.
It was a rude awakening for Bitcoin investors who thought they could handle the crypto volatility. The world’s largest digital currency saw a 30% daily decline last Wednesday, dropping to around $ 30,000 apiece. It wasn’t until mid-April that Bitcoin hit a record high of USD 64,829. The turbulence was dramatic even by crypto standards. The last time Bitcoin saw a drop of this magnitude was in March 2020 at the height of the Covid pandemic. And even then, trading wasn’t that annoying.
According to Coin Metrics, Bitcoin experienced 14 days of failure in May alone. So far this year there have been 39 days of daily fluctuations of 5% or more in either direction based on Bitcoin’s closing prices. There were a total of 42 such days in 2020.
While the digital token quickly rebounded over $ 39,000 in price on Monday, rising 20% in price, heightened regulatory pressures as well as the technical picture point to wilder trading, strategists said.
“The drubbing that cryptocurrencies have received over the past two weeks is just a taste of what’s to come,” Peter Berezin, chief strategist at BCA Research, said in a note. “The crypto markets will continue to face tighter regulation … In the near future, the pain in the crypto markets could weigh on other speculative assets like tech stocks.”
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The recent fluctuations were due to increased government scrutiny in the US and abroad. The Federal Reserve is due to issue a paper shortly setting out its own research into the central bank’s digital currency space. In the meantime, the Chinese authorities have promised to take action against the mining and trading of cryptocurrency.
Elon Musk, a proponent of the cryptocurrency, also made a sort of 180 on Bitcoin when he announced that the electric automaker had suspended vehicle purchases with the asset, citing environmental concerns about what is known as the computational mining process.
“Bitcoin remains weirdly volatile,” said Adam Crisafulli, founder of Vital Knowledge. “The economic benefits of nothing are shifting so quickly.”
Bitcoin’s 31.1% intraday decline was the cryptocurrency’s fourth-largest decline in history, according to Cornerstone Macro.
Momentum signals remain “problematic”
On the positioning of Bitcoin futures, JPMorgan analysts believe the worst correction is not yet in the rearview mirror.
Momentum traders have scaled back their Bitcoin futures bets after failing to break above $ 60,000, which made sentiment bearish and caused further position settlement, according to the Wall Street firm.
“Despite the rebound in prices to around $ 40,000, the momentum signals, and in particular the longer lookback period as a signal, remain problematic,” said Nikolaos Panigirtzoglou, managing director of JPMorgan, in a note. “It is too early to say the end of the recent Bitcoin downtrend.”
Carter Worth, chief market technician at Cornerstone Macro, said interested sellers are waiting at the $ 42,000 level and that this high overhead offering will make it difficult for Bitcoin to reach and exceed that level. Meanwhile, buyers who have pulled at their recent lows will sell if the price rises too much, he said.
“It sold on its trend line,” Worth said. “Every step was technical.”
Repetition of the lows of the last week possible
Many believe investors shouldn’t be surprised if Bitcoin is selling again soon to retest last week’s lows.
“A possible re-test or even a modest drop below the lows of last week in the near future is quite possible given China’s crackdown on digital assets and the US regulatory overhang,” said Julian Emanuel, chief strategist for stocks and derivatives at BTIG.
Still, Emanuel believes that further downside volatility would be a buying opportunity. He set his Bitcoin year-end goal at $ 50,000.
– CNBC’s Nate Rattner and Michael Bloom contributed to this story.
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