Bitcoin has encountered significant volatility lately, falling more than 70% from its all-time high. … [+]
Bitcoin prices have suffered some turbulence lately, repeatedly approaching $20,000 and falling to some of their lowest values since late 2020.
The digital currency dropped to $20,079.72 yesterday morning, TradingView figures show, its lowest since December 2020.
The cryptocurrency then bounced back, surpassing $21,700 yesterday afternoon, additional TradingView data reveals.
Today, bitcoin prices made another move toward $20,000, falling below $20,300.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Fed Rate Hike
The digital currency made this latest attempt on the $20,000 level shortly after the Federal Open Market Committee issued a statement revealing that it was raising the target for the federal funds rate to between 1.5% and 1.75%.
This announcement confirmed the expectation, held by many, that the FOMC would in fact hike its benchmark rate by 75 basis points, the largest increase since 1994.
This development does not bode well for risk assets, as ratcheting up the federal funds rate places upward pressure on broader interest rates, which in turns causes bonds to provide more compelling yields.
Since market participants can obtain greater rewards by putting their money into low-risk investments, they have less incentive to opt for risk assets. This, in turn, could place downward pressure on the prices of assets like cryptocurrencies and stocks.
Following these latest developments, experts shed some light on what bitcoin prices might do next.
Key Technical Levels
Several market observers pointed to the $20,000 price level, highlighting its importance and emphasizing that bitcoin has been unable to break through the support there.
“BTC’s hard bounce off of $20k clearly illustrates the strong psychological support at $20k – both because it was the prior ATH (all-time high) and because it’s a nice round number,” said analyst Tim Enneking.
“Interestingly, once BTC has set a new ATH (in this case, about $70k), it has never taken out the prior ATH. Dropping below $20k would, therefore, be a first,” stated Enneking, who is the managing director of Digital Capital Management and co-founder and managing partner of financial services firm Psalion.
“My best guess is that BTC will fall below $20k, but not for long and not very far,” he added.
Richard Usher, head of OTC Trading at BCB Group, also weighed in on this important psychological level, stating that “a quick run below 20,000 is almost inevitable” because of the FOMC’s rate hike and press conference.
He offered some insight on what the cryptocurrency might do after falling below the $20,000 mark.
“I think a stop loss run will cleanse a few short term positions out of the market and I believe a move sub $20,000 will be short lived. I think we will try to establish a low around $17,500/$18,000 before recovering.”
Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital, pointed out a similar support level, highlighting $17,000 as being “important.” He noted that if bitcoin broke through support there, $13,000 would be the next key level.
Usher and DiPasquale also highlighted crucial levels of resistance, with the former stating that “a break back above $23,000 should confirm a short term low is in place” and the latter indicating that “on the upside, $25K is the first step toward any real reversal.”
Bitcoin’s Outlook Uncertain
Several analysts emphasized that due to variables like macroeconomic uncertainty and bitcoin’s high correlation with equities, the digital currency’s future outlook is murky.
“This is the first time in crypto’s history that it’s experiencing a bear market alongside the global economy,” said Jesse Proudman, VP Crypto Investing for Betterment.
“This is exacerbated by systematic headwinds as significant leverage is being unwound from the system,” he added.
“Exactly where we are in that unwind is the critical question and will likely dictate which way price moves.”
Collin Plume, CEO and founder of My Digital Money, also chimed in.
“I think digital currency is yet to hit rock bottom and it’s both a function of fear and uncertainty brought by our economic crash in epic proportions and cunning and hopeful desires to buy low,” he stated.
Plume stated that “crypto investors are starting to take cover” by flocking to “tangible” assets such as “cash and precious metals.”
He noted that many crypto investors are selling their digital currencies, even if they have to incur a loss to do so.
“Couple that with crypto prophets declaring Bitcoin will go down below $10K and you have a market that is both cautious and hopeful,” said Plume.
“They don’t see the harm in walking away from the crypto market right now since it’s going to go down anyway. They can just hold their tangible assets and when things get better, crypto bottoms and they can buy in again for optimal gains,” he noted.
“It’s a self-fulfilling prophecy,” Plume concluded.
Enneking also commented on bitcoin’s future market prospects.
“The biggest issue is how long it will take for a truly meaningful recovery. Given the challenges in the fiat macroeconomic world, which now affect crypto so strongly because of the ‘daylight correlation’ between equities (especially US equities) and crypto (especially BTC), it may take a while for BTC to rebound significantly.”
Veteran Investors Undeterred, Says Analyst
Regardless of how the markets have been performing lately, veteran crypto investors are unfazed, claimed Konstantin Boyko-Romanovsky, founder and CEO of Allnodes Inc.
“There are different kinds of crypto traders; believers in Blockchain technology and its value and those who invest in the prices of cryptocurrencies,” he stated.
“These newcomers joined the latest crypto bull run in hopes of making it rich quickly. These are the same people pulling out of the crypto market right now, affected by the Fed’s interest rate hikes, rising inflation, and potential crypto regulations.”
“The devotees, on the other hand, are not going anywhere,” the analyst said.
“They are rebalancing their crypto portfolios, getting involved deeper, doing more research, waiting it out, or getting in at lucrative prices.”
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS
EOS
