Bitcoin crash: what happened and what to expect from now on, according to experts

After threatening to gain strength yesterday afternoon and surpassing the $43,000 mark, Bitcoin (BTC) engaged a sharp drop during the early hours of Friday (21), losing support at $40,000 and reaching $40,000. less than $38,000, pushing some altcoins to double-digit dips.

At 15:30 (Brasilia time), the largest cryptocurrency in the world recorded losses of 10.5% in the accumulated of 24 hours, quoted at US$ 38,300. The drop is still smaller than that of Ethereum (ETH) and Solana (SOL), for example, which lost 13.7% and 11.5%, respectively, at $2,781 and $124.

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The pullback took some traders by surprise, mainly because of the slight rallies in recent days. According to CoinGlass, in the last 24 hours, there have been almost $900 million in liquidations (loss of leveraged traders). Of those, $336 million was in Bitcoin, $256 million in Ethereum and $22 million in Solana.

The move is seen as a continuation of the trend of capital flight to assets considered safer, amid fears that central banks should begin to increase the pace of interest rate recovery, increasing the attractiveness of government bonds.

Cryptoassets at this moment have a strong correlation with technology stocks, which have continued to fall sharply on American stock exchanges in recent days – Netflix, for example, has dropped almost 25%. In a report, analyst firm Delphi Digital assesses that investors are pricing in several interest rate hikes, which is significantly impacting risky assets.

“The topic of the week is the latest jump in bond yields, particularly US Treasuries, as investors continue to position themselves for an accelerated monetary tightening schedule,” the report reads.

For the research house, although the news has mainly highlighted nominal returns, it is the recent increase in real returns that matters most in this scenario, especially for non-income generating assets such as Bitcoin and gold.

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According to Levante’s team of analysts, part of this drop refers to the dismantling of speculative positions. “This market deleveraging occurred after investors around the world recalculated the probabilities of the Fed raising interest rates in 2022,” they explain.

“In addition to tightening liquidity, the measures are intended to lower inflation. And for some time now, cryptocurrencies have been functioning as a hedging strategy against inflation. With less need to hedge, positions are dismantled”, says Levante.

On Friday, Bloomberg also released a survey of economists, who expect U.S. central bank officials will signal that they will raise the benchmark interest rate in March, marking the first increase in more than three years, and that they will move to reduce the balance sheet. institution’s assets soon after.

Most of the 45 economists participating in the survey believe the Fed will use the January 25-26 meeting to communicate a 0.25 percentage point increase in the reference rate to combat inflationary pressures. Two of them expect a more substantial increase of 0.50 point, which would be the largest since 2000.

Can Bitcoin drop further?

For analysts, the key to Bitcoin’s recovery is the return of institutional investors, who have been making profits since the last quarter of last year.

“Institutional inflows have yet to come back, and with the $40K support of BTC broken, the market as a whole has been pushed down,” said Laurent Kssis, ETF expert and director at CEC Capital.

However, in his opinion, the short-term outlook is bad and the price of the cryptocurrency is likely to fall further, possibly causing a new wave of liquidations from leveraged traders.

“There is still $100 million of long positions open, half of which is on the BitMEX exchange, something I haven’t seen in a while,” Kssis said. “As BTC plummeted overnight, these leveraged long positions must be liquidated, it’s just a matter of time.”

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Valdiney Pimenta, CEO of BitPreço, talks about the possibility of the market being in the so-called “crypto winter”. “Historically, after a bull market like what we witnessed in 2021, follows a long period of bear market, known as crypto winter. I believe that there are strong chances that this period is starting, which could extend throughout this year”, he evaluates.

On the other hand, the expert points out that it is in these moments of decline that the best opportunities for investment for the medium and long term occur.

Humberto Andrade, Bitcoin Market trader, in turn, says that despite the 44% drop since the all-time high reached in November, it is still too early to say that the crypto market has definitely entered the market. bear market.

“We are in a moment of lower volumes and larger long-term positions, which has taken advantage of the drops to increase position. Recent volatility is very much linked to market reasons in general, which would be the increase in cases of covid with the omicron variant around the world and also the recent scale of a possible war between Russia and Ukraine”, says the expert.

“What we noticed is that the market has been exposed more to the risk of products with a lower marketcap (market value), which ‘drains’ the money from the main assets of the market for the so-called emerging ones or gems”, he concludes.

Angel trader and investor Vinícius Terranova is more cautious, and warns of a possible sharper drop. “$34,500 is where I start to buy, where the next support is,” he points out. Support is a price zone with a high amount of buy orders. For Terranova, if BTC drops below this region, it risks collapsing to $28,000, the price last recorded in July 2021.

How far will cryptocurrencies go? What’s the best way to buy them? We have prepared a free class with step by step. Click here to watch and receive the InfoMoney Cryptocurrency Newsletter

About Abhishek Pratap

Food maven. Unapologetic travel fanatic. MCU's fan. Infuriatingly humble creator. Award-winning pop culture ninja.

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