Bitcoin is at it again. The digital currency that led the 2017 crypto-craze, rising to staggering heights before losing well over half its value the following year, has crashed nearly 40% from a 2019 high above $12,500 set in July. In just the past week, the cryptocurrency has fallen nearly 25% as it dropped well below $8,000 on Thursday, testing its 200-day moving average level of around $7,000, according to Bloomberg.
But despite the massive rout, more losses may still be in store for Bitcoin. The GTI Global Strength Indicator, which offers a measure of upward and downward movements of successive closing prices, suggests that the coin has yet to reach oversold territory. That means there could be further pain ahead for the world’s most favored, or despised, cryptocurrency.
- Bitcoin falls nearly 40% from 2019 high.
- Could be due to the disappointing debut of Bitcoin futures exchange.
- Analysts question Bitcoin’s safe-haven status.
- Bitcoin trading volume has been declining since 2017.
What It Means for Investors
With Bitcoin’s price movements beginning to look eerily similar to what happened in late 2017 and early 2018, a number of analysts have offered opinions for what’s might be driving the decline this time around. Oanda senior market analyst Ed Moya suggested it could be due to the overall lackluster debut for the new federally regulated Bitcoin futures exchange, known as Bakkt.
Others suggested that the delayed decision on a Bitcoin exchange-traded fund (ETF) by the U.S. Securities and Exchange Commission (SEC) may have had something to do with the rapid decline. Some think it might have been CME futures contracts set to expire this week, according to a separate story in Bloomberg.
Still others questioned the idea that Bitcoin is actually a safe haven similar to gold, which many of its proponents argue. TD Ameritrade manager of trader strategy Shawn Cruz noted that investors have been moving into safer assets and that Bitcoin’s break below $9,000 may have sparked a rush to the exit. “You had a massive rally in bonds yesterday at the same time. That could be behind that as well.”
That thesis earned some support from Mati Greenspan, senior market analyst at trading platform eToro. Despite being promoted as being uncorrelated with other asset classes, it’s hard not to notice that U.S. stocks took a hit just prior to Bitcoin’s drop. That might be a little more than a coincidence. But he also echoed Moya’s concern, “In my mind, the main catalyst for [Tuesday’s] crypto crash was due to the underwhelming Bakkt launch.”
The uninspiring debut for Bakkt, which offers the first Bitcoin futures contracts to be settled in Bitcoins rather than dollars, may be a sign of just how little trading volume there is right now. “The disappointing Bakkt opening signals to the crypto community that institutions are less ready to invest in BTC at scale than was supposed, which means the price was probably too high and due for a correction,” wrote Alex Mashinsky, CEO at crypto lending and depository company Celsius Network, according to Barron’s.
But it’s not just institutions that are staying on the sidelines. There are also appears to be a general lack of interest in crypto even for retail investors, said Sid Shekhar, co-founder of London-based Token Analyst. His firm, which tracks crypto data, found that the number of unique addresses sending Bitcoin to exchanges like Binance and Bitfinex has been declining ever since the market peaked back in 2017.
Of course, all of the reasons above could have played some part in Bitcoin’s most dramatic plunge of the year. But it’s been here before and while it may be facing even more headwinds than it did back at the end of 2017, it’s an asset that regulators have worried is subject to price manipulation, and so it's anyone’s guess where it will head next.