Bitcoin price at risk of dropping below $30k as trading remains bearish
(Kitco News) Bitcoin is in danger of approaching a critical level of $30,000 after falling more than 15% during the last week as it continues to make lower lows.
The world’s largest cryptocurrency by market cap tumbled around 6% on the day, with prices falling below $33,000 for the first time since July 2021. At the time of writing, Bitcoin was trading at $32,560.
Bitcoin has gotten caught up in a broader market selloff as investors sold the cryptocurrency along with other risk-on assets, such as tech stocks. Last week, the selloff accelerated in the stock market as the Dow Jones Industrial Average fell more than 1,000 points and the Nasdaq was down 5% on Thursday — the worst single-day performance since 2020.
The washout was primarily driven by fears of a recession in light of upcoming interest rate hikes by the Federal Reserve, which is projected to raise rates by half a point in June and July after already committing to it once in May. The Fed has also laid out a plan to reduce its $9 trillion balance sheet starting June 1.
“Bitcoin continues to fall as it reaches a key level of support around $33,000,” said GlobalBlock analyst Marcus Sotiriou. “Investors are clearly concerned about the aggressive monetary policy from the Federal Reserve, as they will also begin Quantitative Tightening (removal of liquidity from the market) in June.”
Aside from the macro drivers weighing on Bitcoin, there is also a debate around Bitcoin as a reserve currency. Over the weekend, this reached a critical level after the stablecoin TerraUSD (UST) briefly lost its peg to the U.S. dollar.
This was important because the Luna Foundation Guard — the organization behind TerraUSD — has been purchasing Bitcoin to bolster the reserves of its stablecoin. The goal is to get to $10 billion worth of Bitcoin. The reserves currently stand at around $3.5 billion.
“UST lost its peg on Saturday after an allegedly coordinated attack on the stablecoin. Do Kwon, the founder of Terraform Labs who created UST, has since reassured people that any claims against Terra’s security is ‘fud’ (fear, uncertainty and doubt) and that the protocol is indeed robust to withstand these kinds of attacks. UST has regained its peg as it climbed back to $0.995,” Sotiriou explained.
To address this issue, the Luna Foundation Guard said that it would loan $750 million worth of Bitcoin to trading firms to protect the U.S. dollar peg stability.
“Relative to Terra, $UST has experienced notable directional flow over the weekend, accompanied by similar volatility in both $LUNA and $BTC. While this flow has currently evened out, it is prudent to prepare for potential future volatility,” the Luna Foundation Guard said in a tweet. “As a result, the LFG Council has voted to execute the following: Loan $750M worth of BTC to OTC trading firms to help protect the UST peg. [And] loan 750M UST to accumulate BTC as market conditions normalize.”
4/ As a result, the LFG Council has voted to execute the following:— LFG | Luna Foundation Guard (@LFG_org) May 9, 2022
- Loan $750M worth of BTC to OTC trading firms to help protect the UST peg.
- Loan 750M UST to accumulate BTC as market conditions normalize.
What’s next for Bitcoin price?
One negative sign for Bitcoin going forward is that it is stuck in a bearish trend — making lower lows. But a relief rally could be around the corner, said Sotiriou.
“Technically, Bitcoin’s structure is bearish as lower-lows and lower-highs persist, but Bitcoin is now approaching the bottom of the 16-month range. The region near the low of the range, from $28-32k, could be a good region to add to long-term holdings from a risk-reward perspective,” he said. “On-chain metrics remain incredibly bullish, as the percentage of Bitcoin which has not moved in a year is now at an all-time high. This shows that the proportion of Bitcoin holders who are long-term HODLers is increasing, which is positive.”
Long-time Bitcoin critic Euro Pacific Capital chief economist Peter Schiff warned that if Bitcoin drops below $30,000, it is very likely to crash below $10,000.
If #Bitcoin breaks decisively below $30K it seems highly likely that it will crash below $10K. That means anyone who owns Bitcoin now has a very important decision to make. What will you do? You had better decide now so you don't panic and make a rash spur-of-the-moment decision.— Peter Schiff (@PeterSchiff) May 8, 2022
He also noted that stocks, which are highly correlated to Bitocin price, including MicroStrategy and Coinbase, are also suffering heavy losses, down 19% and nearly 15%, respectively.
“The three most important #crypto bell weather stocks are getting killed today. $MSTR is down 22%, $COIN is down 16% and $GBTC is down 13%. These stocks are down 74%, 76%, and 63% from their respective highs. All this with #Bitcoin still above $32K,” Schiff tweeted.
The three most important #crypto bell weather stocks are getting killed today. $MSTR is down 22%, $COIN is down 16% and $GBTC is down 13%. These stocks are down 74%, 76%, and 63% from their respective highs. All this with #Bitcoin still above $32K. Wait until Bitcoin crashes!— Peter Schiff (@PeterSchiff) May 9, 2022