bitcoin

The Bitcoin price bubble seems to be bursting. BTC is trading at $40,243, which is slightly above the intraday low of $38,593.  The currency is more than 38% below its all-time high of near $65,000. Its market capitalization has crashed from more than $1 trillion to the currently $743 billion.

Sell-off

Why BTC price is falling

There are several reasons why the Bitcoin prices have retreated sharply. First, the decline of BTC has coincided with a situation when investors are rotating from growth and risky assets to value. Indeed, the Vanguard Value ETF has outperformed the Vanguard Growth fund. 

Second, there is increasingly chance that the Federal Reserve and other global central banks will start their gradual tightening. Furthermore, in the United States, inflation and inflation expectations have surged to the highest level since 2008. In the UK, the headline inflation doubled from 0.7% in March to 1.5% in April. The Eurozone consumer price index also surged by 1.6% in April. 

Therefore, with inflation rising and with the labour tightening, it means that the next move for the Fed and other banks will be higher. Historically, Bitcoin prices tends to underperform during a tightening cycle.

However, like I wrote in my Bitcoin, inflation, and high interest rates article, the weakness tends to be temporary. This is simply because investors tend to overreact at first and then start pricing in future easing. Therefore, while Bitcoin prices have fallen, there is a possibility that they will recover as investors rush to buy the dip.

Third, to a large extent, actions by Elon Musk have also contributed to the sell-off. This is because they have pushed institutional investors away from the asset because of ESG concerns. Finally, the statement by Chinese authorities on cryptocurrencies have also contributed to the weakness.

Bitcoin Hodlers should be excited

Bitcoin hodlers are disappointed by the recent price action. However, in reality, they should be excited. First, we all need to realize that Bitcoin’s price rose too fast in a short period of time. Historically, such parabolic moves never end well.

Second, the rally attracted many speculators who are only interested in its price action. This is the same reason why garbage coins like Shiba Inu, Dogecoin, and Safemoon have rallied in the past few months. Therefore, as Bitcoin prices retreat, these speculators will likely run away and leave the true Hodlers. 

Third, the decline presents an exciting entry point for Hodlers. Three weeks ago, 1 Bitcoin was going for $65,000. Today, it is selling for $40,000. In the next few weeks, the currency will be lower, as I will explain below. However, in my estimation, the currency will be worth much more once this distribution phase ends.

Bitcoin price prediction

Bitcoin price
BTC price chart

The daily chart looks ugly for bulls. The chart shows that the Bitcoin price has already moved below the 23.6% and 38.2% Fibonacci retracement level. This is s dangerous sign since it means that the currency has more sellers than buyers. Therefore, in my view, the next key level to watch is the 50% retracement at $34,000 and the 61.8% retracement at $26,800. This is in line with what the following analyst believes.

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