Earlier this week, ministers from the world's top economies, the G7, called for greater speed as financial watchdogs introduce comprehensive crypto regulation. This comes shortly after Terra's demise saw several crypto users suffer considerable losses in the space of a week. G7 Contacts FSB to Hurry Things Up The stablecoin failed to maintain its dollar peg and crashed as low as $0.07, with sister token LUNA not far behind. This created a ripple effect as general market anxiety destabilized even…
It took Bitcoin price around three months to fall by 50%, and investors wonder how low it can go. While this is not the most profound decline in BTC price, it certainly caught the market attention.
As experts discuss the reasons behind the fall, traders are proposing a more practical approach.
Today, in particular, we will take a look at the opinion of Chinese investors on the matter. As a first step, we will briefly analyze the recent price decline in the crypto market.
It is always complex to provide a precise analysis of a developing situation, but the market sends clear signals.
After giving more context to the current market situation, we will focus on Chinese investors. Several polls tell us that traders expect BTC prices to fall a bit more before entering the market.
None of the content in the article represents financial advisory; all readers should run their research on the matter.
The recent BTC price collapse
Last year we saw confirmation in the high volatility of Bitcoin. Mathematically, we noted that BTC recorded 19 days where its price moved by over two standard deviations from its average.
To give more context to this information, 2020 saw only ten days like this, but it appears to be an exception. Indeed, the 2021 value is close to past numbers (23 in 2017, 21 in 2018, and 18 in 2019).
No matter how mature Bitcoin may appear, the truth is that the market is still far from offering stability. Last year BTC opened trading operations slightly below $40,000, approaching $60,000 in Spring.
After falling back to a little bit more than $31,000, it moved close to $70,000 last November. And now, here we are again below $40,000. As the collapse is still ongoing, it may be hard to call the end of the current bearish trend.
Experts on the market are pointing out the bad behavior of BTC in times of higher inflation rates. Although, as Goldman Sachs analysts claim, Bitcoin will be the next gold, it surely needs to change its behavior.
While inflation in the U.S. hits an annual 7% value, gold and BTC prices have followed opposite trends recently. Going back to December 15th, gold was at $1,780, and BTC was close to $49,000.
Since then, gold has easily surpassed the $1,800 threshold, with Bitcoin losing 25% of its market value.
Looking at past declines
Before thinking about whether investors should worry about the crypto market, we suggest looking at the bigger picture. As already mentioned, the volatility recorded in 2021 is in line with what we have observed in the past.
The current trend is strongly bearish, but the market has undoubtedly seen worse situations over the years.
To make an example, in December 2017, BTC was at $19,000, and it went below $4,000 in 2019. So we are talking about an 80% decline here, a collapse that did not stop BTC from reaching new highs.
The past behavior of BTC sends two different messages to the market:
- Investors need to take into account the possibility of large price swings
- If a decline can last more than a year, it seems complicated to call the end of the bear market.
Buying the dip
Experts are running polls online to understand how low Bitcoin prices may go. One may argue that a market exclusively relying on votes may show signs of overvaluation.
However, the outcome of certain polls provides several exciting pieces of information.
Among the latest polls, we notice how Chinese investors appear to be bullish on Bitcoin among the latest polls. The question asked to traders was how low they believe BTC will go and when they will buy the dip.
Most of the respondents see BTC moving below $30,000, with a relevant number of traders aiming at less than $25,000.
If Bitcoin moved below $25,000, the market would handle an overall correction of over 60%.
This would be a massive decline by looking at the past, but the market has seen worse. Most importantly, BTC proved to recover from more prominent collapses.
However, it is essential to remind that past performance cannot indicate future earnings. For this reason, the argument for a bullish BTC market needs to rely on a more substantial basis.
Let us not forget about inflation
When we talk about the recent crypto price collapse, we cannot ignore the “elephant in the room.” The “elephant” in our case is what is happening in the world economy at the moment.
The return of inflation in the U.S. (and worldwide) has sent the financial markets into a tricky area. We know that the Federal Reserve will eventually raise the introductory interest rates in the economy in 2022.
We also know that the relationship between federal rates and Wall Street is complex.
Speaking of complicated relationships, we need to mention that between the stock and crypto markets. While regular times may lack correlation between the two worlds, bear markets are imperfect everywhere.
Knowing this, the recent crypto collapse gains more meaning for investors. To put it in simple terms, traders sell riskier assets during a bear market to move money towards safer investments.
We are used to seeing the money outflow from the risky stock market to the safer bond sector. Investors see cryptocurrencies as an even more difficult asset with higher sales in this context.
It appears unlikely that cryptocurrencies will stop falling in the current financial scenario. Bitcoin needs an end to the bearish phase on the stock market. But what could stop the stock prices decline?
To sum it up: investors need reassurance that the Federal Reserve can control the inflation increase.
Final thoughts on Bitcoin and the crypto market
Regardless of what one may read online, cryptocurrencies are proving to have failed the Wall Street independence test. Bitcoin aimed to build a fully decentralized system, but the reality shows that central banks can move crypto prices.
Considering this fact and the gold price increase, BTC still needs to grow into an inflation hedge. Looking at polls such as the Chinese one may help us locate the market bottom.
While El Salvador decided to buy the dip only a few days ago, Chinese traders are waiting to see how the situation develops.
The general feeling is that investors understand that BTC is undervalued, but they believe the crash is not over.