After weeks of falling – months, if truth be told – we recently saw signs of a solid rebound from Bitcoin that sustained itself over more than a single day. The currency bottomed out at just over $17,000 before rebounding back above the $20,000 mark, and tellingly, this came just days after suggestions had been made that the bottom would be around $15,000. It raises the question of whether Bitcoin has a natural bottom, and if so, where that might be.
It needs to be remembered, before debating whether Bitcoin has a floor price, that this is a coin that was worth pennies when first launched. It went on to be worth tens of thousands, so we’re talking about an asset that isn’t like most others. When we’re talking about Bitcoin, no matter what the framing of the conversation, we are talking with a certain amount of speculation. At the lower and higher ends of its performance, Bitcoin and other cryptocurrencies are not going to be easily predictable because we haven’t got much past performance to base solid forecasts on.
Why market sentiment is a potent indicator for crypto
Gold can become more and less valuable when there is more or less gold to trade. This is pretty much a rule of commodities no matter what field they are in – the scarcity of an asset can drive its market price, and so can its desirability, and a bunch of other measurable details. Crypto coins, whether they are BTC, ETH or XRP, do not draw their value from a physical asset, and their worth is not measurable by any metric other than market sentiment. So it is harder to locate a realistic bottom price for Bitcoin, because there isn’t a base level of market sentiment; it’s not a measurable quantity.
Why central banks are taking an interest
The relationship between central banks – who, after all, issue fiat currency – and cryptocurrencies is one that has several complicating factors. Banks make money by speculating on assets and recouping the profits, so cryptocurrencies have to interest them because they interest the markets. While you can certainly bet at a Dogecoin casino, you’re not generally going to use it much in other circles, so it’s hard to fix a point for its valuation, or that of any crypto coin. Banks are now, more than ever before, starting to talk in terms of the regulation of cryptocurrencies, because they can have an effect on the wider market.
If crypto becomes subject to regulatory oversight in a more comprehensive way than it currently is, then this could make it possible to fix a realistic bottom price for the currencies. It’s purported that this is one key reason why a lot of the more maverick investors in crypto are against the idea of regulation.
Why does this matter to crypto owners?
Crudely, cryptocurrency holdings are given their value by the amount that people are prepared to pay for them. The higher the price that Bitcoin can hold, the more fiat currency it can later be exchanged for. And this matters, at least right now, because there isn’t much that you can do with crypto besides hold on to it. While it can be used for betting, trading and speculating, there isn’t the same market for goods as exists with fiat currencies. So if you buy Bitcoin, you’re always going to be hoping that it rises in price, giving you more of the initial fiat currency than you started with.
With one of the key aspects of crypto trading being that you “buy the dip” – buying at a low price so you can then sell when it is higher – finding the bottom of the Bitcoin market would be beneficial for traders. After all, you don’t want to buy the dip if there’s still more dip to come.
