How Low Can Bitcoin Go? – Forbes Advisor

The crypto markets have had a tough year, characterized by brutal sales.

The value of the global cryptocurrency market has fallen from a peak of more than $2.9 trillion in November 2021 to around $1 trillion today.

Bitcoin remains the world’s largest and most popular crypto, with a market capitalization of $433 billion. But it hasn’t been immune to market weakness.

After reaching a new all-time high of $68,789 in November 2021, the price of Bitcoin fell as low as $17,708 in June 2022. Since then, Bitcoin prices have recovered to above $22,600.

Bitcoin bulls are hopeful fears of destabilization of stablecoins and contagion in the crypto lending market, but some analysts say Bitcoin still has room for downside before the end of the year.

What is the “True” Bitcoin Bottom?

Bitcoin prices are down more than 67% from 2021 highs.

Such severe selling is nothing new in the crypto market. The crypto experienced a roughly 80% crash from its 2017 highs in 2018, only to rise to new all-time highs again in 2020.

Still, there are several key differences between the 2018 Bitcoin sale and 2022’s crypto winter. Sales in 2018 were largely driven by panic selling and margin requirements on retail investors’ positions.

The sell-off in 2022 has been fueled by concerns about contagion threatening the stability of the entire crypto market. Crypto lending companies Voyager Digital and Celsius Network were all recently forced into bankruptcy after facing severe liquidity crises.

In addition, investors have lost confidence in the stablecoin market in recent months following the collapse of TerraUSD (UST) in May.

Bitcoin Value: BTC is difficult to value

Bitcoin does not generate cash flow, revenue or earnings, and it is not backed by any assets that have intrinsic value. So it can be difficult for analysts and other experts to assign an appropriate value or price target for the crypto.

Bitcoin bulls argue that, like gold, Bitcoin’s value is tied to its scarcity, as the crypto has a fixed cap of 21 million total coins.

A fixed supply and no intrinsic value means that Bitcoin prices are determined solely by market demand, making investor sentiment in the crypto market the most important element in predicting where Bitcoin prices are headed.

Some analysts rely on technical analysis of Bitcoin’s price chart to determine key support and resistance levels in the short term, including a potential price level for Bitcoin’s bottom.

What is Bitcoin’s breakout price?

Julius de Kempenaer, senior technical analyst at StockCharts.com, says that the Bitcoin chart suggests that a breakout price above $22,500 could take Bitcoin to its next resistance level around $27,500. Still, the upside beyond that point can be difficult.

“The long-term trend for BTC remains down after breaking support around $30,000, which at the same time marked the completion of a major top formation,” says de Kempenaer.

He also says that he is not convinced that the Bitcoin bottom is in yet, given the selling pressure in Bitcoin appears to be strong, and “easy movement” is the downside for now.

“Want it [$17,500] mark the lowest for BTC? I’m not so sure, he says. “I watch [$12,500] as a potential long-term goal.”

Is Inflation Spelling Trouble for Crypto?

Another important difference between the Bitcoin sale of 2018 and the crypto winter of 2022 is the macroeconomic environment.

In 2022, the Federal Reserve has aggressively raised interest rates to combat the highest US inflation figures in decades.

Bitcoin prices could easily fall to new lows if the macroeconomic environment deteriorates further, experts say.

While bearish news is already baked into Bitcoin’s price, other falls could be possibilities, especially if inflation climbs faster than expected.

Inflation has been a key component of the 2022 crypto winter, and investors tend to dump higher-risk assets when the Fed raises interest rates to meet inflation. The correlation between Bitcoin prices and the S&P 500 has also been extremely high this year.

Daniel Rodriguez, an accredited investment manager and chief operating officer at Hill Wealth Strategies, says Bitcoin prices have the potential to fall even lower.

“Every time interest rates go up or the Fed announces plans to raise interest rates, Bitcoin takes a sharp dive almost immediately,” Rodriguez says.

Anthony Rousseau, senior director of product strategy at TradeStation Crypto, says the bottom of Bitcoin in 2022 will be closely tied to Fed policy.

“If the Fed continues with its published plan, I feel it is likely to see continued strength in the US dollar and bearish pressure on risk assets like Bitcoin,” says Rousseau.

According to CME Group’s FedWatch Tool, the bond market is currently pricing in a greater than 66% chance that the Fed will raise interest rates by at least another 2% by the end of the year.

Risk tolerance in Bitcoin investment

Bitcoin may have taken a beating so far in 2022, but the crypto remains one of the best long-term investments in the market in recent years.

Bitcoin prices have continued to increase by more than 110% over the past three years and a whopping 740% over the past five years.

Critics of Bitcoin’s potential to serve as an actual currency have long pointed to its shortcomings as a stable store of value.

While it may seem like Bitcoin’s 52% year-to-date decline is extreme, volatility is fairly typical for Bitcoin. The native crypto has not completed a calendar year without an annual gain or loss of at least 60% since 2015.

Bitcoin’s volatility creates extreme risk for investors, especially when using margin.

BTC may seem cheap and is trading at around $22,600 today compared to $60,000 just a few months ago. However, given the ongoing macroeconomic uncertainty, including persistently high inflation and rising interest rates, crypto winter may still be a long way from spring.