Just over 24 hours, investors were expecting Bitcoin to push past $10,000 for the first time in weeks. Now, the cryptocurrency is plunging lower, recently reaching a low of $8,930 — the lowest price since May 13th, just two days after the block reward halving.
The 10% retracement from the weekly highs coincides with a suspicious transaction from an early BTC address, created in February 2009 after its owner mined 50 coins in one of the earliest Bitcoin blocks.
Investors first thought that this was Satoshi Nakamoto dumping his coins. As the cryptocurrency creator is believed to own over one million obtained by mining the blockchain in 2009 and 2010, investors believed that this was the start of a larger sell-off, hence the price drop.
But, even after the fears that the transaction was by Satoshi were disproven by multiple blockchain analytics firms and prominent commentators, BTC has continued to slide lower.
This likely to do with the fact that market factors indicated a correction in the Bitcoin price was on the table, making the Satoshi fears just a catalyst for an eventual move. As reported by Blockonomi previously, one trader identified that at $9,800, Bitcoin’s bullish momentum had slowed, open interest in the futures market had increased, and the funding rates of futures contracts had trended positive — three textbook signs of a reversal.
For the time being, analysts are expecting more downside as the cryptocurrency begins to fall below crucial support level after support level.
Bitcoin Could Be Subject to Further Downside
One prominent crypto trader shared with his Telegram channel that Bitcoin is currently looking bearish, citing a loss of momentum and a bearish volume trend.
Bulls look very weak since sustaining the bounce yesterday. Momentum has been lost and volume is bearish.
He then published the chart below, indicating that Bitcoin’s price action looks eerily similar to the last two times the cryptocurrency traded around $10,000. The last two times Bitcoin’s chart looked as it did, crashes ensued.
Other analysts echoed this bearish sentiment, pointing to how the cryptocurrency just lost important support levels like $9,000 and specific moving averages.
Long-Term Demand Drivers Still Present
The expectations of a short-term drop have not snuffed out the presence of drivers of demand that will boost Bitcoin in the long run.
Bloomberg Intelligence’s senior commodities strategist, Mike McGlone, wrote on Twitter just hours before Bitcoin’s latest leg lower that he sees key indicators “supporting BTC’s ability to sustain above $10,000” eventually:
- There is an increasing number of active Bitcoin addresses.
- At the CME, there is “record-high futures open interest.”
- The assets under management of Grayscale’s Bitcoin Trust has hit an all-time high.
Key indicators support #Bitcoin's ability to sustain above $10,000. Increasing addresses used, record-high futures open interest and assets under management (AUM) of GBTC support the digital version of gold's value and the crypto's similar direction to the advancing metal. pic.twitter.com/jMWw6Cz97u
— Mike McGlone (@mikemcglone11) May 21, 2020
The optimistic medium to long-term outlook was echoed by analysts at BlockTower Capital, a crypto and blockchain investment fund.
In a research note published earlier this week, the firm identified a potential perfect storm of fundamental events and trends that will likely increase Bitcoin demand. These include but are not limited to:
- Bitcoin has begun to decouple from the S&P 500 and other traditional markets, which may drive demand from all types of investors trying to hedge their portfolio.
- There are potential tensions between the U.S. and China as the geopolitical implications of the COVID-19 outbreak increase.
- There has been an “erosion of trust in central banking.”
- Due to COVID-19, much of the world has become increasingly acclimated to using technology, meaning cryptocurrencies and other forms of digital currency make that much more sense.
- Emerging market economies are starting to get crushed, resulting in dropping foreign currencies against the dollar. This may drive demand for Bitcoin, which can act as a safe haven.