Bitcoin BTC/USD has been in a major downtrend over the past few months. Currently trading at $19,791, down from its all-time high of over $68,000. Prior to Bitcoin’s latest crash, the cryptocurrency had been floating between $28,000 and $32,000 for numerous months. The Bitcoin Fear and Greed Index currently is at 19, denoting extreme fear in the market.
Investors may consider buying Bitcoin right now due to its historical price movement of rallying prior to its halving. Additionally, recent support from governmental bodies, looking toward crypto regulation is bullish for Bitcoin in the long term. The bipartisan-supported Responsible Financial Innovation Act proposed on June 7th represents governmental support for cryptocurrency regulation. Furthermore, extreme fear present in the market classically indicates a good buying opportunity for Bitcoin. Thus, with a long-term horizon, current levels may present an attractive buying price for investors.
However, there are numerous bearish factors perpetuating the downtrend experienced in Bitcoin’s price movement. Here are three to consider:
There is large-scale illiquidity experienced by crypto firms globally. Three Arrows Capital (3AC), a large cryptocurrency borrower and lender, following the recent market crash, has experienced severe insolvency. The firm stored thousands of Ethereum ETH/USD tokens, causing its illiquidity to prevent investors from withdrawing their funds globally.
Other firms, such as the Celsius CEL/USD network, have faced illiquidity as well, causing investor funds to be frozen. Thus, the potential bankruptcy for these firms and liquidity crunches faced across the globe is a bearish signal for Bitcoin in the short term.
Secondly, the macroeconomic climate of the world is uncertain, with fears of an impending recession globally. The Federal Reserve, on June 15, stated that they would be increasing interest rates by 75 basis points, indicating quantitative tightening (QT).
With excessive paper money printed following the COVID-19 pandemic, inflation rates had been on a continuous rise. Thus, to preserve the economy, undertaking quantitative tightening could be an extremely bearish signal for Bitcoin.
Thirdly, the nature of Bitcoin is a risk asset. Risk assets during recessionary market conditions experience much larger price volatility, as compared to risk-averse assets. Therefore, if global markets were to head into a recession, large-scale capital may further flow out of speculative asset classes, such as cryptocurrency. This may implicate a further drawdown in Bitcoin prices.
Therefore, as market conditions remain turbulent and unclear, Bitcoin’s short-term price action is looking bearish. However, when markets begin to recover and investor confidence is slowly restored, Bitcoin, as the largest cryptocurrency, will likely come out of its bear market hibernation and return its climb up over global markets.