Will the Bitcoin price crash again? Weighing investment risks and rewards

Bitcoin prices are buoyed by favorable macroeconomic factors that are offsetting concerns about Mt. Gox, but some analysts predict that the price of Bitcoin could fall below $50,000 in the coming weeks.

The bitcoin market has been roiled by a series of adverse events, such as Mt. Gox's repayment of 140,000 bitcoins to creditors and the German government's ruthless bitcoin liquidation. Both factors have increased the likelihood of billions of dollars of bitcoin being sold, leading traders to wonder if the bitcoin market has more downside after a 15% drop in the first week of July.

Analyst: Bitcoin will fall below $38,000

Independent market analyst Matthew Hyland has confirmed a downside price target for Bitcoin of below $38,000.

In a July 8 X post, Hyland cited Bitcoin’s breakout from a multi-month consolidation range on the weekly chart to support his bearish view, noting that the probability of the cryptocurrency returning to the same range is low.

Bitcoin’s weekly relative strength index (RSI) reading is around 45, further confirming the bearish outlook.

This RSI level suggests that neither buyers nor sellers are in control of the market. However, the current market downtrend suggests that the RSI has more room to fall, at least until it reaches the oversold threshold of 30, which usually signals a price rebound.

Likewise, Bitcoin could continue to fall until the RSI reaches an oversold reading of 30, which could coincide with Hyland’s downside target below $38,000.

“The weekly RSI has almost retraced back to last year’s lows of August/September, when BTC was trading at $25,000,” Hyland reminded, adding: “Another red weekly candle could push the RSI lower, providing an opportunity for a bullish divergence.”

Is $50,000 the Next Bitcoin Bottom?

Anonymous market analyst Stockmoney Lizards also expects the price of Bitcoin to plunge further. However, his downside target is around $50,000.

Chartists cite the so-called "Bat Harmonic" pattern to explain its limited bearish bias. The pattern begins with an initial price move (XA), followed by a retracement (AB), another move (BC), and finally a final move (CD) that extends 88.6% of the XA move.

Point D is a key area where traders expect a reversal to occur, which is usually confirmed by other signals such as candlestick patterns or volume. In the case of Bitcoin, Point D coincides with the $50,000 level, after which the price could potentially recover significantly.

"We are waiting for another liquidity flush, possibly with long-term support below 50k, to establish support at 52k," Stockmoney Lizards explained, adding: "Indicators such as the daily RSI are oversold, but we think there is still some downside. Ideally, we would consolidate at 52k and form a bullish divergence on high volume, which would be our reversal signal."

The macroeconomic outlook for BTC prices

Supportive economic data from the United States, especially increased bets on a possible interest rate cut on Wall Street in September, helped ease the bearish outlook for Bitcoin in the current correction cycle.

According to the Chicago Mercantile Exchange (CME), as of July 8, futures interest rate traders' expectations for a 25 basis point rate cut in September had increased to about 67.3% from 46.6% a month earlier. This shift toward a more dovish outlook gained momentum after disappointing U.S. jobs data released on June 5 triggered a sharp drop in short-term yields.

Falling yields reduce the opportunity cost of holding safer investment assets such as U.S. bonds. Conversely, they boost demand for riskier assets such as cryptocurrencies and stocks. Last week, at the close of trading on June 5, both the S&P 500 and Nasdaq hit record highs.

Bitcoin has also caught up with the rally, reversing the decline led by Mt. Gox and the German government. Bitcoin has risen 7% from its low of $53,550 on June 5. Meanwhile, $398 million worth of funds have flowed into Bitcoin investment funds, including exchange-traded funds (ETFs), every week.

"Inflows into digital asset investment products totaled $441 million, and recent price weakness due to selling pressure from Mt Gox and the German government may be seen as a buying opportunity," said James Butterfill, a researcher at asset management firm CoinShares.

Favorable macroeconomic catalysts, coupled with inflows into Bitcoin funds, provide a positive technical backdrop. Notably, BTC is currently testing its multi-month ascending trendline support, poised for a sharp rally toward its multi-month horizontal trendline resistance (around $71,500) in the third quarter of 2024.

Conversely, a break below ascending trendline support could see prices fall to the .786 Fibonacci Retracement level (around $51,500), a level closer to the aforementioned Stockmoney Lizards analysis.