Has Bitcoin finally reached a bottom?
As prices fell from $7,632 on the first of the month to $5,950 on August 14, a minor bounce on Wednesday night saw the seminal cryptocurrency retrace above the $6,300 area, which is around where they stood on Thursday morning.
As Bitcoin fights to keep its current level, traders and investors who called a bottom during the year's only previous dive below the psychologically significant $6,000 mark in late June are finding their confidence tested.
The second dip below $6,000 was a brief but scary reminder that Bitcoin is still in the midst of a bear market after achieving its all-time high of $19,800 in late 2017.
After last year's steep ride upward, Bitcoin veterans have since been trying to determine where the bottom could possibly be. This is the universal question posted on forums and social networks across the internet, with everyone from day-traders to professional hedge fund managers and crypto media weighing in with their thoughts on fundamental progress, technical analysis, and what it could all mean.
For now, Bitcoin's future seems to be tied to several factors -- specifically, retail investor sentiment, institutional support, the natural bubble cycle and emerging dynamics in the altcoin market.
The conditions that retail traders find themselves in currently are anything but comfortable. It's difficult to be confident in one's position when Bitcoin is in uncharted territory. In an uncertain environment like this, traders might have called the bottom incorrectly dozens of times anywhere on the gradual, uneven decline experienced over the last eight months.
A return to $6,000 -- an even 70% decline from the all-time high -- has no doubt shaken investors' confidence, causing them to capitulate and add overhead resistance on any rally.
Even retail participants that haven't yet sold might likely do so once their break-even point is tested after nervously waiting weeks or months in the red. This will slow the eventual rise of Bitcoin as well, which is already being exacerbated by frustration over unmet institutional investment prospects.
Part of July's run-up to $8,400 was due to anticipation that a slew of Bitcoin ETFs would be approved by the SEC, finally delivering an accessible and compliant asset to traditional markets that would be settled in the underlying Bitcoin itself. The postponement of these decisions --namely the VanEck and SolidX funds -- is also to blame for the latest decline.
Said Ran Goldi, CEO of Digital Asset Group First -- which claims to be the biggest digital asset investment firm in Europe -- "The recent downfall has a lot to do with unfulfilled expectations as to institutional entrance into the market. People are tired of waiting for the big money to come into the game, and the weak hands are selling off to cut their losses. The recent announcements about Bitcoin's ETF just added more fuel to the fire and prolonged the waiting time until further notice. Most conversations right now are talking about February as a potential date for a positive outcome on that front."
Though some investors believe that the recent decline is the ETF delay being priced into the market, with the coming months expected to see bullish momentum due to hopes for a September 30 approval, price action is still volatile in both directions. An increase in the presence of margin trading and futures has made it possible to make big money on short-term volatility.
But as investors observe the liquidations tweeted out by @BitmexRekt -- a Twitter account that serves as a barometer for trading by reporting automated trades on BitMex, the Bitcoin Mercantile Exchange for peer-to-peer trading -- they'll quickly realize that risk has also increased.
Caught in a Cyclical Pattern
Stronger than any fundamental news about a Bitcoin ETF or investor influence is the technical influence on Bitcoin based on past performance -- namely the other historical "bubbles" that have popped. Since its inception nearly a decade ago, Bitcoin has lost over 50% its value on three separate occasions.
Shockwaves from the Mt. Gox crash in late 2013 took the cryptocurrency out at the knees, catalyzing a painfully slow decrease whose bottom represented 87% off the then-all-time-high of $1,200. Given a similar decline, many have estimated Bitcoin's bottom at $3,000 or less before despair sets in and recovery commences.
An equally pessimistic factor in Bitcoin's flailing downward trend is rooted in tangible industry paradigms rather than speculative ones. Ethereum is the world's second-largest market cap cryptocurrency thanks to its ability to be used by blockchain startups to issue their own coins and raising capital. Now, however, trader capitulation is matched by these small projects, who are selling the ETH they raised to keep their ships afloat.
Roei Levav, Partner at algorithmic trading firm and liquidity provider Odyssey, said that "a major catalyst behind the Ethereum sell-off is that projects need cash to pay the bills and cannot sell their tokens due to a shortage of liquidity and low prices. We see a lot of large sell orders which seem to be related to players who received large amounts of tokens as payment or at very favorable terms, now under pressure by ETH prices and pushed to sell off their tokens at any price."
Several big-name investors have recognized that the ICO selloff of ETH is an exacerbating component of the late decline. However, many projects have kept their perspective in recent months, and refuse to relent. CEO Eran Eyal of Shopin -- the blockchain-based AI and retail startup that's raised over $40 million -- said "we see Ethereum in a very different light than just capitalization for [Initial Coin Offerings or "ICOs"]. We believe strongly in the viability of Ethereum and its future. There are so many exciting upgrades that are planned, it will just take time...there is a lot more going on than just a couple of ICOs cashing out their money."
Eyal might be right. Certainly no one can confidently predict where Bitcoin prices will move in the short term, but currently, the equation to find an answer has many competing factors. Listening to any single prognosticator as if what they say is gospel should always be cautioned, but identifying the relevant components of market sentiment and remaining vigilant of them is always a good move.
The author holds stock in investment holding company, Leucadia, and remains a partner in an emerging technology marketing firm, Notability Partners. He holds no positions in cryptocurrencies nor in any companies that invest in them.