Bitcoin price is falling. Brace for a retreat.
Bitcoin
and other cryptocurrencies fell on Friday as regulatory pressure weighed on sentiment. Crypto traders remain bullish – but big bets on a rally can only hurt prices in the short term.
The price of Bitcoin has fallen 3% in the past 24 hours to below $27,000, falling further from the psychologically important $30,000 level, which it passed last week for the first time in 10 months. The $30,000 zone is seen as key because that’s where prices stood last June before a cross-crypto selloff accelerated into a brutal bear market. However, Bitcoin has struggled to consolidate above this level despite peaks near $31,000.
“It is worth preparing for a more typical pullback … to the 50-day average, near $26,700,” said Alex Kuptsikevich, an analyst at broker FxPro. “Such a drop promises to fray the nerves of crypto enthusiasts. A break below that level could quickly take the price to $25,600 – the key 200-week moving average, the capture of which saw the bull market declared resurgent in March.”
While Bitcoin has fallen this week in line with some weakness in the stock market, it has underperformed against
Dow Jones Industrial Average
and
S&P 500
amid concerns over the regulatory backdrop in the critical US market. Broker Coinbase Global (ticker: COIN ), for its part, has signaled it is increasingly looking overseas amid a lack of clarity that could hurt the company.
Macroeconomic forces – primarily inflation and the outlook for interest rates – as well as regulatory pressures remain the driving forces behind crypto prices. After a rally of around 75% so far this year, Bitcoin has pared gains and looks vulnerable to a correction, although macro or regulatory catalysts could help arrest the fall.
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“The market is struggling to find a reason to buy and support the price as profit-taking selling pressure and prolonged liquidation have pushed the price down this week,” said Yuya Hasegawa, analyst at crypto exchange Bitbank.
The second factor, so-called liquidation, is an important market dynamic that is currently pushing prices down. It has to do with the Bitcoin futures market, which is the most liquid place for Bitcoin price discovery in all of crypto.
Most Bitcoin futures positions are taken with leverage, or money borrowed from a broker, and can be forced out if the market swings against traders in a process called liquidation. This usually triggers automatic sell orders, which can cause momentum to build in a downward spiral effect as more traders are liquidated.
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More than $400 million in bullish futures positions have been liquidated since Wednesday, according to crypto data provider Coinglass, coinciding with the falling price of Bitcoin.
“Despite the decline, bulls don’t seem to have given up yet [the] The Bitcoin futures market’s funding rate remains positive, which could limit the upside potential for Bitcoin and exacerbate its short-term moves,” Hasegawa said.
The funding rate refers to a method of hedging the price of “spot” Bitcoin—the token himself, which traded on exchanges such as Coinbase – matches the price of the futures contract. When the price of futures is higher than the price of Bitcoin, indicating that most bets are for prices to rise, the funding rate is positive. Traders who take these long positions that prices will go up then have to pay money to traders with short positions, which stimulates some equilibrium in the futures market.
With the funding rate currently in positive territory, it indicates bullish sentiment prevails despite falls. This could signal that many traders may still be vulnerable to liquidation, which could continue the downward spiral.
Beyond Bitcoin,
Ether
— the second largest crypto — fell 2% to near $1,900. Smaller cryptos or altcoins were weaker, with
Cardano
down 3% and
Polygon
plunges 4%. Memecoins showed much of the same, with
Dogecoin
down 9% and
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Shiba Inu
drop 3%.
Write to Jack Denton at [email protected]
