How low can bitcoin go? That’s the question market participants are posing as the price of the No. 1 digital asset has unraveled toward multimonth lows in recent weeks.
The value of a single bitcoin recently traded to $6,384.76 Wednesday, representing its lowest level since Feb. 5. The computer-driven currency is now down more than 40% year-to-date, raising the persistent concern about the depths to which the nascent asset, which hit a peak nearing $20,000 in December, can reach.
Analyst Jani Ziedins, who predicted the move lower, summed up market sentiment in a recent blog post. “Last week’s $9k support has turned into this week’s $8k support. And thus far it is giving every indication that $7k will become next week’s support. I hope you see the trend here,” he wrote.
So, why is bitcoin falling? While cryptotraders will point to the recent exchange hack, bitcoin BTCUSD, -3.43% has been falling for over three days.
More plausible explanations, according to industry experts, are a combination of failing technical indicators, people betting against cryptocurrencies and the notion that no news is bad news for the crypto community.
“The big story to me is the absence of positive news,” said Matt Hougan, global head of research at Bitwise Asset Management. “We haven’t seen any big institutions putting their stake in the ground to give the market that much needed boost.”
Hougan said the market is awaiting regulatory clarity before making future bets.
Bitcoin’s deterioration, at least on a technical basis, began in early May when it failed to breach a psychological significant level at $10,000, which coincided with a failure at the 200-day moving average. Market analysts tend to closely watch moving averages as a gauge of long-term and short-term momentum in an asset.
As the bitcoin selling commenced, trend lines broke down, culminating in bitcoin piercing a round-number support level at $7,000 on Sunday after the news of a hack of South Korean exchange platform Coinrail.
One trader of a cryptocurrency trading desk, who asked not to be named, because he wasn’t authorized to speak on the record, speculated that the entire descent from $9,000 level can be attributed to so-called short sellers. That is, investors accumulating bets that the price of bitcoin will fall in value in the future.
Tim Enneking, founder and managing director of Crypto Asset Management said that his firm was “shorting [bitcoin] liking maniacs at the moment.”
At this point, it is unclear when the bleeding for bitcoin will cease.
“Personally, I think that we don’t see anything below five [thousand],” speculated Enneking. “However, my traders think the bottom has a three handle, perhaps even a one handle.”