Tuesday, March 21

Bitcoin drops below $35K, what is happening?

Bitcoin price dropped 11% yesterday, and on Saturday morning, January 22, the cryptocurrency is trading for $35,000 – the lowest since July last year. Since the beginning of the year, bitcoin has been trying to break the $40,000 level without much success.

It seemed like a perfect marking moment, and analysts even started talking about the fact that the volatility of the world’s leading cryptocurrency is decreasing and it itself is becoming a “more mature asset”.

But the drop is not surprising: the cryptocurrency market has long since ceased to be interesting only for geeks. It is increasingly merging with the financial sector, it is affected by external events, but it also affects other sectors.

The fall that began on Friday (21), for example, exacerbated the situation on Nasdaq, where investors are selling technology stocks.

falling stocks

Falling cryptocurrencies

Total cryptocurrency market capitalization lost $157 million in one day (a 7.5% drop), according to data from CoinGecko.

Bitcoin price continues to fall after reaching an all-time high of $69,000 on November 10, 2020. Since then, the price of the cryptocurrency has dropped by 43%. Yesterday, the S&P 500 index also dropped – 1.1% to 4,482.73 points. Earlier, analytical firm Arcane Research reported that the correlation between the Bitcoin exchange rate and the S&P 500 index has hit a record since October 2020.

Among the hardest hit cryptocurrencies are memes like Dogecoin and Shiba Inu. Doge is down more than 12% to $0.147. 31% lower than last week’s peak, when Elon Musk announced that this currency can be used for purchases of some Tesla products, and already 80% lower than last year’s all-time high.

All meme coins quickly plummeted.

The rise in bitcoin and other cryptocurrencies last year was seen by some analysts as clear signs of a giant bubble that has swelled in many asset markets. Yesterday one of them, Jeremy Grantham, warned that this “super bubble” has begun to deflate, which threatens the world with the most serious financial cataclysms.

Why is Bitcoin falling?

negative feeling

The drop in Bitcoin (BTC) is a simple continuing trend that has been going on for the past few weeks – negative market sentiment, according to analysts consulted by Coindesk.

“This sentiment is fueled by a series of negative news that outweighs any form of objective asset data”, said Jason Deane, an analyst at Quantum Economics.

While Deane’s long-term outlook is positive, he believes that the current price action is likely to continue in the short/immediate term, and that further downward pressure is possible.

“Once fear sets in, it takes a while to wear off and you simply have to wait for capitulation before you can go back to “normal” intervals.

Another reason, according to Ben McMillan, founder of IDX Digital Assets, is leveraged positions, which exacerbated the selloff at the Asian open on Friday.

“This is almost always the case for bitcoin,” said McMillan, who stated that “$40,000 was a key support that has now turned into a resistance level and we could certainly see more declines over the weekend.”

Correlation with traditional markets

Bitcoin and the cryptocurrency market as a whole are acting as a correlated asset – meaning it is moving in tandem with the broader markets and is most impacted by recent negative sentiment, according to Lucas Outumuro, head of research at Bitcoin. IntoTheBlock.

“Macroeconomic fears and low profits for tech companies have also exacerbated this correlation,” said Outumuro.

It is currently more common to see the value of Bitcoin drop when stocks fall, confirming investor concerns about how interest rate hikes from the Federal Reserve will affect other markets.

Clara Medalie, director of research at cryptocurrency market data provider Kaiko, spoke about how cryptocurrencies are no longer an asset of isolated risk.

“Cryptocurrencies are no longer an isolated risk asset and are responding to changes in global policy”, said Medalie. “It is not surprising that both start to become more volatile as the liquidity taps close.”

Russia may ban bitcoin

Another reason that may have influenced a percentage of the drop can be attributed to Russia’s plans to ban Bitcoin mining and transactions, as explained by Jason Deane, an analyst at digital asset research firm Quantum Economics.

“Rumors of Russian mining bans, the effects of phasing-out programs and ongoing regulatory concerns in certain jurisdictions are currently carrying more weight in trading and investment decisions than the underlying long-term fundamentals”, these Deane.

“At the same time, the increased use and adoption of Bitcoin in high-inflation economies creates a confusing market picture, leading to a lack of decisive direction and momentum anyway.”

US may raise interest rates

There are several reasons for the negative dynamics of digital assets. In particular, this is a sharp rise in US 10-year bonds and the Fed’s intention to raise interest rates has an impact on Bitcoin as well.

Investors say that cryptocurrencies have truly become full-fledged instruments of financial markets and, due to their instability, show the same dynamics as any other high-risk asset.

A number of cryptocurrencies have dropped sharply and the stock prices of cryptocurrency companies have also collapsed: Coinbase shares are down 16% and MicroStrategy shares are down 18%.

Galaxy Digital founder and crypto billionaire Mike Novogratz said that “As rates rise, we will see pressure on Nasdaq and cryptocurrencies.” SkyBridge Capital boss Anthony Scaramucci said his investment firm is not buying into the dip this time, despite recommending it in the past.

However, Aslam said investors are likely to buy in the fall, with many seeing digital assets as the currencies of the future.

“Smart money and other institutions will certainly take advantage of the current price action, and are likely to get a great bargain.”