Bitcoin price fell below $26,000 this week on lower market activity, the growing crisis in China’s real estate sector and a report that SpaceX has sold at least part of its Bitcoin holdings.
THE CENTRAL THESIS
- Bitcoin price has become more vulnerable to greater price swings as trading volumes on exchanges have decreased and large trades can have a greater impact.
- SpaceX, of which Elon Musk is CEO, has reportedly sold at least part of its Bitcoin holdings.
- Concerns over problems with China’s real estate market, which would lead to a deeper economic decline, suggest that Bitcoin may still be viewed as a high-risk asset.
Increased price volatility with lower trading volume
Reports from blockchain analysis firm Glassnode and crypto firm Coinshares suggest that a general lack of interest in the crypto market is a factor behind this week’s Bitcoin price decline. While Bitcoin started the week trading at around $29,400, it fell to around $25,697 by mid-Friday.
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Glassnode’s report specifically took a look at the extreme apathy and exhaustion in the bitcoin market on Monday, three days before the bulk of the price drop took place. The report also warned: “[O]On a shorter time frame, one might expect this to be a slightly top-heavy market, with many price-conscious investors at risk of taking an unrealized loss.”
The Coinshares report published on Friday detailed the link between lower trading volumes on trusted exchanges and increased price volatility for Bitcoin.
“Volatility has declined in recent months, reaching levels comparable to all-time lows seen earlier in the year,” wrote James Butterfill, head of research at Coinshares, in the report. “Historically, such levels have often marked turning points for significant price swings, either up or down,” he wrote.
Additionally, Coinshares pointed out that the strength of bitcoin’s price decline Thursday night was compounded by the unwinding of a large number of long positions in the bitcoin futures markets across various exchanges.
Bitcoin traders have settled around $1 billion worth of bets in the last 24 hours alone, according to Coinglass data.
Did Elon Musk Have Something To Do With Bitcoin’s Drop?
There could be another trigger – the perception that Elon Musk’s space exploration company would exit Bitcoin. On Thursday, The Wall Street Journal reported that SpaceX reduced its Bitcoin holdings to $373 million and sold the crypto asset.
In the past, Tesla (TSLA) CEO tweets had an impact on the prices of certain cryptocurrencies, particularly meme coins like Dogecoins.
Coinshares also warned investors to keep an eye on Musk’s moves as they tend to impact the bitcoin market.
Is Bitcoin still a high-risk asset?
In terms of certain events that may have led to increased downward pressure on Bitcoin price, some market commentators have pointed out that China’s Evergrande Group has filed for bankruptcy. “Unrelated risky assets like bitcoin and cryptocurrencies are feeling the impact [from the Evergrande fallout]said crypto trading platform PrimeXBT.
While Bitcoin is commonly referred to as “digital gold” and a sought-after hedge against economic turmoil, the reality is that the crypto-asset often falls alongside other risky assets during times of uncertainty, as it did at the start of the COVID-19 crisis was the case. 19 pandemic.
Still, Coinshares sees a potential full-blown economic crisis as a potential boon for Bitcoin. “While we think a full-scale financial collapse is unlikely, should it occur, it could strengthen Bitcoin, especially if the impact permeates the entire financial sector,” reads its latest report.
But the week wasn’t all tough. Coinbase’s regulatory approval to offer crypto futures trading in the US was a bright spot for crypto markets this week.
Coinshares also indicated that the market may have to come to terms with the fact that approval for a spot bitcoin ETF, particularly BlackRock (BLK), may not come as quickly as the market initially anticipated.
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