Bitcoin recently experienced a 10% daily downturn from $65k to $58k. While volatility is to be expected in crypto, it is still important to understand the market conditions that lead to these movements.
Last week, inflation news pushed Bitcoin’s price past all-time highs. As a result, many traders opted to open long positions. Within the past 24 hours, however, many of these newly leveraged traders decided to de-risk due to a combination of negative news events and overall market structure. From a high-level, these factors are responsible for Bitcoin’s 10% daily crash.
Biden’s approval of the US Infrastructure bill on Monday (11/15) played the biggest role in Bitcoin’s recent downturn. The crypto market largely holds negative sentiment towards this bill, as it contains a vague ‘broker’ definition that enacts tax reporting requirements to digital assets such as cryptocurrencies and NFTs. As a result of this bill, those who quality as ‘crypto-brokers’ will now have to disclose the names and addresses of their customers, as well as report taxable gains.
Currently, the crypto market is sitting in divergence. On the one hand, retail investors and institutions want to use digital assets as an inflation hedge. On the other hand, the US government wants to heavily tax, regulate, and monitor these assets.
At the time of writing, the 50D moving average is acting as support for Bitcoin. If this level does not hold, the next level of support (the 100D MA) currently sits at about $53k.
Our Senior Market Analysist Bill Noble believes this crypto dump will last for 3 weeks. His prediction is predicated on past price movements that occurred after the announcement of big news events between Bitcoin and legacy finance. “Every time there is an interlink between legacy and Bitcoin, Bitcoin dumps.”
Source: Token Metrics TV
If Bitcoin does indeed dump or trade sideways for the next 3 weeks, then this would invalidate Plan B’s $98k end of November price projection. However, there are other macroscopic on-chain models that show health at Bitcoin’s current price. Influential on-chain analyst Willy Woo’s main indicator, the ‘Top Cap Model’, shows Bitcoin trading in a middle area – indicating that the asset is neither oversold nor overbought.
To conclude, the recent Bitcoin dip is a result of newly over-leveraged traders opting to risk-off, combined with negative news events (mainly the recent signing of the US infrastructure bill). If Bitcoin’s 50D moving average does not hold, then the next area of support for Bitcoin is about $53k.