A visual representation of the cryptocurrency Bitcoin on November 21, 2020 in London, England.
Jordan Mansfield | Getty images
Bitcoin is still in a string of double-digit intraday moves after briefly halving its value in half last week, and Wall Street strategists say this crazy run isn’t going to be over anytime soon.
It’s been a rude awakening for bitcoin investors who thought they could handle crypto volatility. The largest cryptocurrency in the world suffered a 30% drop in one day last Wednesday, falling to around $ 30,000 each from its all-time high of $ 64,829 in mid-April. The turbulence was dramatic, even by crypto’s standards. The last time bitcoin saw a decline of this magnitude was March 2020, at the height of the pandemic. And even then, the trade was not that shocking.
According to Coin Metrics, Bitcoin suffered 14 days in May alone. This year has seen 39 days so far with daily swings of 5% or more in both directions, based on bitcoin’s closing prices. There were 42 such days in all of 2020.
While the digital token bounced back quickly with a price up more than 10% above $ 38,000 Monday, both the increased regulatory burden and the technical picture point to more wild trading ahead, strategists said.
“The beating that cryptocurrencies have received over the past two weeks is just a taste of things to come,” said Peter Berezin, chief global strategist at BCA Research, in a note. “Crypto markets will continue to face tougher regulation … In the short term, the pain in crypto markets could drag down other speculative assets, such as tech stocks.”
The recent swings came amid intense regulatory scrutiny in the US and abroad. The US Federal Reserve will soon release a paper outlining its own research into the central bank’s digital currency area. Meanwhile, Chinese authorities have vowed to crack down on cryptocurrency mining and trading.
Elon Musk, a cryptocurrency advocate, also did a sort of 180 on bitcoin when he announced that the electric car maker had stopped purchasing vehicles using the asset, citing environmental concerns over so-called computational “mining” – process.
“Bitcoin remains comically volatile,” said Adam Crisafulli, founder of Vital Knowledge. “The economic utility of nothing is shifting this quickly.”
Bitcoin’s 31.1% intraday drop was the fourth largest drop ever, according to data from Cornerstone Macro.
Momentum signals remain ‘problematic’
Looking at the positioning of bitcoin futures, JPMorgan analysts think the worst of the correction isn’t in the rearview mirror just yet.
Momentum traders have scaled back their bets on bitcoin futures after the failure to break above USD 60,000 turned sentiment bearish and further settled the position, Wall Street firm said.
“Despite the prices rebounding to around $ 40,000, the momentum signals, and in particular the longer lookback period, remain problematic as a signal,” Nikolaos Panigirtzoglou, a general manager at JPMorgan, said in a note. “It’s too early to call the end of the recent bitcoin downtrend.”
Carter Worth, chief market technician at Cornerstone Macro, said there are interested sellers waiting for the $ 42,000 level and this heavy overhead supply will make it difficult for bitcoin to move up and break that level. Meanwhile, buyers picked up at the recent lows will sell if the price rises too much, he said.
“It sold on its trendline,” Worth said. “Every move it has made is technical in nature.”
Retesting of last week’s lows possible
Many believe that investors shouldn’t be surprised if bitcoin sells out again soon to retest last week’s low.
“A potential retest or even modest undermining of last week’s lows in the near term is very much possible due to China’s crackdown on digital assets and the overhang in US regulation,” said Julian Emanuel, chief equity and derivatives strategist at BTIG.
Still, Emanuel believes any further downward volatility would provide a buying opportunity. He set his year-end target for bitcoin at $ 50,000.
– The Washington City Times’s Nate Rattner and Michael Bloom contributed to this story.
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