Cryptocurrencies, including Bitcoin BTCUSD –0.91%, were falling on Monday. The price of bitcoin dropped 0.91% to $19,700, after climbing above $20,300 on Friday, before pulling back along with the broader stock market. As it dropped below the key $20,000 level, it exited the $20,00-$25,000 range it had hovered within for much of the summer, after the selloff which caused it to plummet from about $40,000 earlier in the year.
Craig Erlam, an analyst at broker Oanda noted, “Bitcoin is continuing to show resilience around $20,000 but that’s really being put to the test as risk aversion sweeps through the markets once more. A significant break at this point could be really damaging, with the following key level below here being the June lows around $17,500. Considering the outlook for risk appetite in the near term, it’s not looking good.”
Other analysts agree, with Naeem Aslam, an analyst at broker AveTrade saying, “Bitcoin’s daily range has narrowed massively, and this is giving us an indication that a massive capitulation is coming. We believe that this capitulation can be any day now as Bitcoin has been trading in a narrow range for a long period of time.”
Aslam pointed out there are two factors indicating that traders have been fighting sell pressures to maintain crypto’s prices higher. The first is that the selloff which hit the stock market in recent weeks, which dropped both the Dow Jones Industrial Average and the S&P 500 by almost 3% just in the last five sessions, passed over Bitcoin with little effect. Although cryptocurrencies should trade as uncorrelated assets, in the past swings in crypto have been linked to swings in other risk-sensitive assets, especially stocks. However so far of late, Bitcoin has avoided the downside it has been vulnerable to in the past.
The second factor would be the rout the currency market is undergoing, where most major currencies are losing to the dollar. The US dollar index, which compares the dollar to a group of select competitor currencies is up 14% this year so far, and it climbed another 0.2% on Monday. Historically, as the dollar has strengthened, Bitcoin has tended to fall, but not this time.
Aslam said, “These two factors indicate that bulls are holding on to their ground very well, and they have not allowed the Bitcoin price to get battered. On the flip side, if there is a capitulation to the downside, then the next move isn’t going to be about the $18,000 price level or $15,000; the sell-off could be so intense that it could easily push the prices towards the $12,000 price mark.”
Working against that is the likelihood that there is a fairly large swath of well funded investors who feel Bitcoin is all but guaranteed to rise above $20,000 in the near term, and much higher in the long term, and thus they have standing orders to buy tokens at sufficient quantities whenever it drops into the $19,000, $18,000, or lower ranges. The question is how much capital they have available to buy, and how many of those currently holding tokens are willing to part with them for those prices out of fears of a further drop in Bitcoin prices.
On the other hand, there is a working theory that bitcoin mining will cease to be profitable at somewhere near the $10,000 per token level due to energy costs exceeding the value of any tokens mined. And that cost of mining a token increases as the blockchain grows and energy costs rise. That would mean, were Bitcoin to appear likely to drop below that level, there could be a mass sell-off by investors fearing a loss of mining which would halt transactions and make Bitcoin worthless as a transferable asset.
If any sell off were to appear likely to drop bitcoin’s price substantially below the cost of mining tokens, it would introduce a challenge to developers to come up with a solution, but that would become more difficult as time passed and the value of tokens continued to decline, even as the cost of mining continued to increase.
In other cryptos, Ethereum was up less than 1% off anticipation of “The Merge,” a long-anticipated upgrade to its blockchain network. Altcoins meanwhile were weaker, with Solana losing 1%, and Cardano down 3%. Memecoins were also down, with Dogecoin down 3% as Shiba fell 6%.
