Is the Bitcoin price stagnant or stable?
Bitcoin price action remains stable but is a value surge just around the corner?
The price of Bitcoin has been steadily declining since 8th November leaving many to speculate the bull run is finally over. With a retracement close to 40% it is easy to see why this is a popular narrative. However, there are many people who believe Bitcoin has one and possibly two more bull runs left in the tank. What are the factors behind this optimism and when could this occur?
Price volatility at record low
The current price of Bitcoin stands at $41,876 representing a fall of 2% in the last 24 hours. Bitcoin has been range bound between roughly $41,000 and $43,000 since 6th January which in the volatile land of unregulated cryptocurrency is something of a rarity. Clearly retail investors have been spooked and institutional investors are buying their time.
This price stability is reflected in the volatility, which according to the Bitcoin Volatility Index is at its lowest point since November 2021 at 2.63%. Low volatility might not be attractive to traders but from an institutional adoption angle it represents maturity and stability which in turn generates interest. Therefore the ‘boring’ price action of Bitcoin may be just what is needed to encourage more large-scale investors to the crypto table.
Bitcoin fear and greed index
As mentioned above, the price of Bitcoin has seen a sharp pull back from record highs of November 2021. In turn, retail investment has practically disappeared as many people fear getting burnt or worse. This market sentiment is measured by the handy Fear and Greed Index which uses a handful of factors to assess how traders are likely to react given the current price. The current Fear & Greed Index score is 24% representing Extreme Fear which to the bold investor is the perfect time to buy.
China Bitcoin ban
Many people believe the price decline of Bitcoin since November 2021 could be related to yet another Chinese Bitcoin mining and trading ban as investors in the far east sell off and take profits. This would explain the 40% drawback as a large proportion of Bitcoin mining occurred in China before the ban. The USA now accounts for the highest percentage of hashpower in the world.
Historically speaking, Bitcoin has a habit of launching a price surge just when everyone thinks the asset is dead and it is headed for zero. This could easily be the case here. The development of the Bitcoin network has come too far in the last 24 months for it to crash and burn and the adoption of nation states such as Venezuela, El Salvador and lately Tonga show just how much credibility Bitcoin still has in the tank.
Cleaning Up Cryptocurrency
The real question is why isn't anyone buying Bitcoin, and other crypto for that matter, in large enough quantities to move the market which was evident at time throughout 2021. This could be due to many factors. As we have discussed before the market is in dire need of regulation and its absence deters many traditional investors looking to enter the space.
Later this week US Congress is due to host a hearing of the Oversight and Investigations Subcommittee entitles “Cleaning Up Cryptocurrency: The energy impacts of blockchain” which is sure to make recommendations which will impact the development of the market. So, is circa $40,000 the new floor? Will it hold? And once we have regulatory clarity will investors return to the table in record numbers? Only time will tell.
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.