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Multiple indicators show that the market's bullish sentiment towards Bitcoin is dissipating.
In the second quarter of this year, the price of Bitcoin experienced a cliff-like drop, plummeting 41%, which was the fourth largest quarterly drop in its more than ten-year history.
Some analysts believe that in the third quarter that has already begun, Bitcoin will be at a crossroads and will continue to face a series of risks including stricter regulation and high volatility.
“The hype has left the market”
The last time Bitcoin suffered such a sharp sell-off was in the fourth quarter of 2018, when it fell 43%.
It is worth mentioning that the decline of Bitcoin did not occur in the context of a general decline in various asset markets. During the same period, the S&P 500 rose by 8.2%, the Nasdaq Composite rose by 9.5%, WTI crude oil futures rose by 24%, and even the underlying asset of many Bitcoin investors, gold, rose by 3.3%.
"It's safe to say that the hype has left the market." Mati Greenspan, founder of Quantum Economics, said that this will have a more serious impact on Bitcoin than other assets because "Bitcoin is mainly driven by speculative sentiment."
In the first quarter just past, people continued to question the speculative craze about Bitcoin, energy use, risks, etc. Regulators in many countries introduced a series of measures.
Investors' waning enthusiasm for bitcoin is also reflected in the futures market. According to data from the bybt.com website, there is currently about $11 billion in open interest, more than half of the peak of about $28 billion on April 13.
The balance of long and short bets has also begun to tilt toward the bears. As of last Thursday, short positions accounted for 53% to long positions, while the long-short ratio was basically the same for most of June. In January this year, the long-short ratio was 53% to 47%, which was biased toward the bulls.
Meanwhile, overall activity on the Bitcoin network also declined in June. Data from research firm Glassnode shows that the use of alphanumeric codes needed to put Bitcoin in or out of a wallet has fallen from a peak of about 1.4 million on April 15 to about 500,000 on June 27, the lowest level since early 2019. The seven-day moving average of active Bitcoin addresses tracked by it also fell to 758,165, the lowest level since April 2020.
In response, research firm IntotheBlock said in a research report: "Speculative activities in the market have dropped sharply, which means that there is still bearish sentiment in the cryptocurrency market."
Continue to face "strong regulation"
Fawad Razaqzada, an analyst at Think Markets, believes that all this puts Bitcoin at a crossroads as it enters the third quarter. He said that Bitcoin still has some well-known supporters, such as Twitter founder Jack Dorsey, but also some high-profile skeptics, such as Warren Buffett.
"All these pull factors are reflected in the current price of Bitcoin around $30,000," said Razakada. "Many people expect that the longer Bitcoin is resisted at $40,000, the easier it will eventually collapse and fall sharply to around $20,000."
Market analyst Ryan Browne wrote on the 5th that Bitcoin will face "strong regulation" such as high volatility, environmental concerns, and review of stablecoins in the second half of this year. Browne said that last week, the global crackdown on cryptocurrencies spread to the UK. British regulators banned Binance, a leading digital currency exchange, from engaging in regulated activities. Media reporters noted that in recent months, many countries around the world have intensively introduced regulatory policies for Bitcoin. The Central Bank of Mexico, the Ministry of Finance of Mexico, and the National Banking and Securities Commission issued a joint statement on June 28, announcing that cryptocurrencies are not their legal tender and are prohibited from being used in their financial system.
Last week, the U.S. Financial Services Committee held a hearing on the craze in the cryptocurrency market and expressed its intention to strengthen regulation of the Bitcoin market. Bill Foster, co-chair of the U.S. Congressional Blockchain Caucus, also said that the United States should pass legislation to authorize the reversal of Bitcoin transactions.
As for the risk of continued wild swings in cryptocurrency prices, Brian said: "Bitcoin bulls view it as a kind of 'digital gold' - an asset that is uncorrelated to broader indicators and can provide impressive returns during times of economic turmoil. While volatility can be a good thing when asset prices are rising, it works both ways. At the same time, the trend of traders making highly leveraged bets on Bitcoin being driven out of the market has contributed to the wild swings in Bitcoin prices this year."
In addition, Brian said that the questioning of the environmental impact of Bitcoin cannot be ignored. "Bitcoin mining equipment requires a lot of electricity to run, and Bitcoin's energy consumption has risen sharply in the past few years as the price of Bitcoin has risen." He said, "Although Bitcoin's critics have long warned about its huge carbon footprint, Musk has brought this issue back to the forefront this year."
Citigroup also mentioned in a research report earlier this year: "At the very least, this may prevent some investors from holding Bitcoin. It may also stimulate government intervention and ban mining."
Brian also pointed out that the scrutiny of stablecoins will have an ultimate impact on Bitcoin prices. "So-called stablecoins are also facing increasing scrutiny." Boston Fed President Eric Rosengren recently said that Tether, one of the world's largest digital currencies, poses a risk to the stability of the financial system.
Tether insists that each of its tokens is backed 1:1 by U.S. dollar reserves, which is intended to keep prices stable. Cryptocurrency investors often use Tether to buy cryptocurrencies as a substitute for the dollar. But some investors worry that Tether's issuer does not have enough U.S. dollar reserves to justify its peg to the dollar. Brian pointed out that there have long been concerns about whether Tether is used to manipulate the price of Bitcoin. A study claims that the token was used to support Bitcoin during a key price drop during Bitcoin's surge in 2017.
In Brian's view, we need to be wary of increased speculation in the cryptocurrency market in the second half of the year.
He cited the example of Dogecoin, a cryptocurrency that was initially just a joke. It surged earlier this year to a record high, worth more than Ford and other major U.S. companies, thanks to celebrity support and the influx of retail investors seeking outsized returns. But since then, its value has depreciated significantly. Another example is a decentralized financial token (DeFi) called Titan, which fell to zero.
In addition, some analysts pointed out that we need to be wary of the number of scams in the cryptocurrency market. It is these hype and sell-offs that have caused retail investors to suffer huge losses. (Yicai Global) |
