It might be summer in the city, but Old Man Winter may have come to the cryptocurrency industry a little prematurely. It was a wild June 22 trading session for bitcoin and its crypto brethren as prices cratered to multi-month lows. Market analysts fear that thrills and chills have infected digital currencies, triggered by measures employed by China and investors exiting the back door – and so much more. Is this a passing storm, or the cryptocurrency market getting ready for a deep freeze? For the bitcoin bulls, this is a buying opportunity. For the bears, this is a celebratory moment of “I told you so.”
A Little Bit of Bad Luck?
Bitcoin prices plummeted more than 11% to as low as $28,911, the lowest level since January, wiping out approximately $400 billion of market capitalization. Bitcoin has slumped close to 40% since March, and some industry observers are anticipating that the peer-to-peer decentralized virtual currency could breach $25,000 as the next crucial level of support. But it was not all doom-and-gloom as front-month contracts started recovering on the Chicago Mercantile Exchange (CME). After significant hemorrhaging, Bitcoin climbed above $33,000, Ethereum flirted with $2,000, and dogecoin, which dropped to $0.17, rallied 22% to top $0.23. Whether this is a permanent recovery or not remains to be seen.
That said, are investors still confident about their calls of $100,000 or even $250,000 from earlier this year? Tom Lee, a Wall Street strategist, believes $100,000 per token is achievable by the end of the year, but the crypto is in a "very rough patch."
As the Crypto World Turns
The big story impacting markets was China. Over the last month, Beijing has been clamping down on bitcoin, whether it is prohibiting mining or reminding financial institutions not to offer services involving cryptocurrency transactions. The People's Bank of China (PBoC) recently published a statement requiring banks to run detailed probes into clients' accounts to determine if they are participating in crypto exchanges. If these businesses learn that customers are engaged in bitcoin and other virtual currencies, their payment channels would be removed. The central bank also held bitcoin-related meetings with China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (AgBank), and Postal Savings Bank of China.
Investor outflows are climbing. Bitwise, Coinshares, and Grayscale – three investment product companies – confirmed that they had suffered six straight weeks of declining investment, totaling $89 million in the last week. Ether has also seen about $2 million worth of outflows during the same period. Matt Weller, global head of market research at Forex.com, thinks it could be a while before "another period of sustained fund inflows."
Market observers speculate that the U.S. government announcing that it recovered most of the ransom paid to DarkSide, the Colonial Pipeline hackers, contributed to the steep decline in prices.
Ultimately, it comes down to China and what the authorities plan to do regarding crypto and the potential threat it poses to the rise of the digital yuan. This is what traders are worried about in these volatile times.
Fairlead Strategies founder Katie Stockton told CNBC that investors need to steer the ship through the storm: "The only guarantee with the cryptocurrency space is volatility, and obviously that’s what we have right now. It’s not new, we’ve had days like this before, it’s just a matter of navigating through this noise."
Is the Bitcoin Future Bright?
Despite the extreme pullback in prices, this correction is a positive one for bitcoin. If long-term holders wish for the coin to survive, they should be cheering for $20,000 as the next threshold.
Bitcoin was in a bubble as prices skyrocketed too fast, requiring a sharp correction to maintain a healthy market. This ignited a tidal wave of fly-by-night altcoins that are jokes, memes, or copy-and-paste source codes contributing nothing to the sector and seeking to pump and dump. Bitcoin and Ethereum have been accepted into the Wall Street congregation, with hedge funds, banks, and pension funds exposing their portfolios to these digital currencies. This likely does not spell the end of bitcoin, much like how the steep decline in gold following the Federal Reserve’s June policy meeting did not mark the conclusion of the yellow metal’s bull run. These are the buy-the-dip moments that investors who missed out on the initial runs need to pad the old portfolio.
The only development that would eradicate the industry would be a full-blown ban in China, the United States, Europe, and other advanced economies. Will it happen? Ask the whales.
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Read more from Andrew Moran.
