Crypto aficionados are engaging in a bout of buy-the-dip action, climbing alongside US equity futures on Tuesday.
Bitcoin is attempting to rebound off the US$30,000 region, having dipped briefly below that psychologically-important mark earlier today. Bitcoin bulls would also have noted that forays below $30k have preceded strong rebounds on multiple episodes in 2021, including the run that ultimately ended with its current record high set back in November.
Crypto bulls will be hoping for a repeat this time around.
However, for proper context, the world’s largest digital token is still trading around its lowest levels since July 2021, and remains over 50% below its all-time high set back in November.
Why have cryptos been falling?
Cryptos have been swept along with the risk-off wave across global financial markets as investors and traders worldwide face a wall of worry, including:
To be clear, such fears have prompted market participants to dump not just speculative assets, but also safe haven stalwarts such as US Treasuries and even gold.
But the fact that Bitcoin has demonstrated a strong correlation with tech stocks appears to be diluting Bitcoin’s claim to be a viable hedge, either against inflation or extreme bouts of market turbulence. The 90-day correlation coefficient of Bitcoin and the tech-heavy Nasdaq 100 has breached 70, which is a record high.
Will Bitcoin fall further?
Crypto market participants are closely monitoring measures to stem the rout in Bitcoin, including:
Also, look out for any commentary by Treasury Secretary Janet Yellen when she testifies on Capitol Hill this week on how the US government could shape policy pertaining to cryptocurrency. Such policy clues may inject even more volatility for crypto markets.
Already, the strains on the crypto universe are becoming more obvious, with TerraUSD still trading well below its $1 intended peg (around $0.88) at the time of writing.
Although Bitcoin appears to have found a floor around the $30k mark for the time being, another wave of selling across global financial markets could trigger the next leg down for Bitcoin.
Perhaps more worryingly for HODLers, from a technical perspective, there is little by way of support between the $30k and $20k regions for Bitcoin prices, with keen focus on the December 2017 peak around $19,500.
Bitcoin bulls still have their work cut out for them after the recent rout, with a sustained presence above $35,000 likely required before confidence can be adequately restored and more participants would be enticed enough to return.
But with some 40% of Bitcoin wallets already underwater (unrealized losses) according to Glassnode data, $29,000 could prove to be that line in the sand (more specifically, the January 2021 low of $28,817.89).
If that critical $29k support doesn’t hold, that could herald a return of sub-$20k Bitcoin.