Bitcoin
and other cryptocurrencies were falling Friday as regulatory pressures weighed on sentiment. Crypto traders remain bullish—but big bets on a rebound may only hurt prices in the short-term.
The price of Bitcoin has fallen 2% over the past 24 hours to $28,100, falling further from the psychologically important $30,000 level, which it passed last week for the first time in 10 months. The $30,000 zone is viewed as key because it’s where prices stood last June before a selloff across cryptos accelerated into a brutal bear market. Bitcoin though has struggled to consolidate above that level despite spikes to near $31,000.
“It is worth bracing for a more typical pullback … to the 50-day average, near $26,700,” said Alex Kuptsikevich, an analyst at broker FxPro. “Such a drop promises to fray the nerves of crypto enthusiasts. A break below that level could quickly take the price to $25,600—the all-important 200-week moving average, the capture of which allowed the bull market to be declared resurgent in March.”
While Bitcoin has fallen this week in line with some weakness in the stock market, it has underperformed against the
Dow Jones Industrial Average
and
S&P 500
amid concerns over the regulatory backdrop in the critical U.S. market. Broker
Coinbase Global
(ticker: COIN), for its part, has signaled that it is increasingly looking overseas amid a lack of clarity that could hurt the company.
“More traders process the news that Coinbase might end up leaving the U.S. market if they don’t get any regulatory clarity,” said Edward Moya, an analyst at broker Oanda. “Bitcoin will struggle here until we have any regulatory clarity which means prices seem poised to drift lower.”
The ultimate risk traders are eyeing with respect to the Coinbase situation is that if the broker, an influential venue for American retail investor action in crypto, leaves the U.S. it could fuel a slowdown in digital asset trading in a key market. That could weigh on prices.
Macroeconomic forces—primarily inflation and the outlook for interest rates—as well as regulatory pressures remain the driving forces behind crypto prices. After a rally of some 75% so far this year, Bitcoin has been paring gains and looks vulnerable to a correction, though macro or regulatory catalysts could help halt the slide.
“The market is struggling to find a reason to buy and support the price as profit-taking selling pressure and long liquidation have pushed down the price this week,”said Yuya Hasegawa, an analyst at crypto exchange Bitbank.
That second factor, so-called liquidation, is an important market dynamic pushing down prices at present. It has to do with the Bitcoin futures market, which is the most liquid venue for Bitcoin price discovery in all of crypto.
Most Bitcoin futures positions are taken with leverage, or money borrowed from a broker, and can be forcibly closed out if the market swings against traders in a process called liquidation. This typically triggers automatic sell orders, which can cause momentum to build in a downward spiraling effect when more traders get liquidated.
More than $400 million in bullish futures positions have been liquidated since Wednesday, according to crypto data provider Coinglass, coinciding with the falling price of Bitcoin.
“Despite the decline, bulls do not seem to have given up just yet as [the] Bitcoin futures market’s funding rate still reads positive, which could limit upper potential for Bitcoin and worsen its short term drawdown,” said Hasegawa.
The funding rate refers to a method of ensuring the price of “spot” Bitcoin—the token itself, as traded on exchanges like Coinbase—matches the price of the futures contract. When the price of futures are higher than the price of Bitcoin, indicating that most bets are for prices to rise, the funding rate is positive. Traders that take these long positions that prices will go up then have to pay money to traders with short positions, incentivizing some equilibrium in the futures market.
With the funding rate currently in positive territory, it indicates that bullish sentiment prevails despite declines. This could signal that many traders could still be vulnerable to liquidation, which could continue the spiral lower in prices.
Beyond Bitcoin,
Ether
—the second-largest crypto—dropped 3% to near $1,900. Smaller cryptos or altcoins were weaker, with both
Cardano
and
Polygon
down 4%. Memecoins exhibited much of the same, with
Dogecoin
down 4% and
Shiba Inu
shedding 2%.
Write to Jack Denton at jack.denton@barrons.com
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