For a long time, Bitcoin had been considered to be a “digital gold” and based on the performance we saw in the past two weeks, that assumption is completely false. The most popular cryptocurrency hadn’t faced any global recession since it’s appearance and now that the likelihood of a 2020 economic contraction had increased, Bitcoin is treated like a risk asset and investors are dumping it.
Drop below $8,000 – further room to go?
Sunday had seen the biggest Bitcoin drop in 2020, give the price moved from the $9,000 area to $8,000. Even though the selling had been relatively contained yesterday and we might get a technical bounce, the bigger picture had changed completely and now Bitcoin seems poised for more losses in the mid-term horizon.
In mid-February, we were talking about how Bitcoin had managed to break above $10,000 and now the market sentiment had taken a 180-degrees turn. The worst news for buyers is that the price broke below the daily 200 moving average, a diving zone between bullish and bearish territory.
Global risk sentiment still sour
For the first time in the past decade, trading on the US stock market had been halted for 15 minutes, after the major indices dropped a staggering 7%. That’s a major signal of risk aversion and at the same time, it shows major financial companies are preparing for worse-than-expected economic conditions in 2020.
The implications in the case of Bitcoin are significant, given that all cryptocurrencies are part of the high-volatility assets. Even though companies like Microsoft or Verizon continue to invest blockchain solutions, that won’t provide any relief for the cryptocurrency market.
Cryptocurrency traders should carefully monitor how financial markets will perform, in order to get further clues about any change in risk appetite. Right now, major markets are down close to 20% and we should see at least a bounce higher. In the short-term, it will be a positive sign for Bitcoin, which could erase some of the losses.
However, it will take more than that to completely change the risk sentiment and revive the appetite for risk we saw in 2019. The coronavirus epidemic and the recent oil shock are two important issues that will have major implications on global financial markets if no relief will show in the near term.
As long as uncertainty continues to linger, we should expect to see limited interest in Bitcoin and other altcoins. Volatility will remain high, and that could mean plenty of trading opportunities ahead.