For the past several days, the Bitcoin price had shown signs of stabilization around the key $10,000 psychological area, following a strong selling move that brought Bitcoin down from $12,000 starting with September 1st. This month did not have the most encouraging start for BTC and the broad cryptocurrency market, considering bears had been the most favored.
Confluence of indicators acting as a headwind for Bitcoin
After Bitcoin had been favored for months by increasing risk sentiment, weakening US dollar, and positive performance across all risk assets, all of these factors had acted as a drag on the price since September started. Stock markets retraced from their highs (Nasdaq100 lost 10% in 4 days), the US dollar started to recover and the global risk sentiment had weakened, following a pretty impulsive run higher on all major assets.
Faced with this confluence of negative indicators, the inevitable occurred and Bitcoin sold off sharply, from $12,000 on September 1st, to little under $10,000 by the 5th of the month. Combined with the last 4 days of consolidation, this is an important selling leg and could weigh on buyers appetite to get involved in the near term.
BTC and crypto vulnerable to more downside risks?
Following the corrective move in all asset classes, market participants had come to realize that prices can go down, as well, and combined with the impressive run higher in valuations, it is possible that some of them might begin to question whether a reversion to the mean should occur.
Last week we’ve talked about the BoE Bailey’s impressions on Bitcoin, stablecoins, and CBDC, showing that central banks in Europe and the US are still reticent when it comes to embracing cryptocurrencies. The massive volatility we’ve seen this year is yet another reason to believe that crypto has a long way to go until it will become a stable store hold of wealth and a reliable medium of exchange.
In the meantime, though, it is ideal for speculation, now that we have plenty of financial instruments based on crypto. The past two weeks had been shaky for Bitcoin, but looking forward, it is hard to anticipate the next major market move. Will it dive below $10,000 or will it reach new 2020 highs will depend on the same factors that led to the current correction. It would be critical to watch how other asset classes, in particular stocks, will perform, because the BTC correlation had been high over the past several months.