Bitcoin below $40,000 for first time in 6 months
The price of Bitcoin suffered further crash losses today as the value of the world’s foremost digital currency dropped below $40,000 usd for the first time in six months. While recovering slightly since a precipitous fall to $38,250 in the early hours of this morning, the price of Bitcoin is currently trading at $39,022 usd leaving many investors to speculate what caused the drop.
The Bitcoin network has never been stronger with the hash rate at all time highs. The hash rate is the metric which illustrates the computing power needed to mine Bitcoin. A higher hash rate demonstrates confidence in the network and its long term growth. After dipping in mid 2021 the hash rate has recently rebounded to record highs.
It is often said that positive price action usually follows higher hash rates however looking at the current market performance this is clearly not the case. As we know the cost of mining is closely tied to the price of Bitcoin. For large scale mining farms to be profitable miners need to know their break even point and calculations based on the current hash rate indicate this to be around $34,000 usd.
With the network in good health it is pertinent to look for outside factors which may have caused investors to sell off.
$600 million ways to fry
Many people are pointing towards Friday’s options expiry of some $600 million in open interest contracts as a major factor in the price crash of Bitcoin. After almost two weeks of sideways action many investors believed that $40,000 usd represented a solid price floor. However, with speculators gambling on the value of Bitcoin through futures based ETF’s the price of an unregulated asset such as Bitcoin is always going to be open to manipulation. When you add in the fact that leveraged Bitcoin liquidations across trading platforms account for $292 million the picture of market manipulation becomes clear. Regulation has never been more needed in an industry desperate to break into the mainstream.
History shows us investors do not like uncertainty and when anxiety is in the air capital is often pulled from high risk assets into safe havens. Although Bitcoin is more frequently viewed as a risk free hedge to rising rates of inflation it is still considered by many to be a risk-on investment. Therefore, with the crisis in Ukraine bringing increased uncertainty to worldwide markets it is prudent to believe that a degree of long term profit is banked as significant capital leaves the market. The difficult question any serious investor should be asking right now is what and how long will it take before Bitcoin inevitably bounces back?
Author: Mark Harridge
Mark Harridge first came across Bitcoin and began to use its peer-to-peer payment network in mid to late-2011. He quickly understood that this technology would change the world. Mark is passionate about crypto adoption, from a macro economic and institutional perspective, and the numerous factors that fuel the relentless march towards individual self sovereignty and the decentralised society of the future.