Bitcoin is the most popular cryptocurrency in the world, achieving notoriety among a wide range of both individual and institutional investors over the years. While last year was challenging, the market managed to climb back again since the beginning of 2023, and users are looking into how to buy Bitcoin to add to their portfolios. That’s no surprise, considering that digital currency has long been touted as a way to create and preserve value, despite the famous price fluctuations.
However, it seems like the marketplace is set for another difficult time, as the value has experienced a considerable slide recently that has erased much of the gains BTC recorded since the beginning of summer.
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Larger economy
There are many reasons why Bitcoin is going through a rough patch yet again. Regulatory pressures are primarily to blame for the fact that the crypto couldn’t gain a firm foothold and climb. A lack of momentum caused the asset to become stagnant, which impacted the market and somewhat reduced engagement rates. The uncertainty and insecurity that resulted from participating in a market that could be subjected to harsher regulations led many to take a step back, at least momentarily.
Another reason is the difficult economic situation. As inflation continued to rise, interest rate hikes continued to play a significant role in the entire market. Now that Bitcoin is getting increasingly close to the traditional markets, fluctuations in the economy will naturally begin impacting it as well. And it’s not just the United States that is struggling with economic difficulties. China is also experiencing a slowdown, with prices continuing to fall, a trend that has become steadily more visible since the beginning of the year.
The risk is significant, as prices falling over a larger period of time automatically results in decreased spending. That, in turn, means that companies have to cut back on production levels, meaning that salaries could plunge and layoffs might become imminent. The youth unemployment rate already appears to be considerably low, raising questions concerning the post-pandemic recovery. Some economists have drawn a parallel between the country’s current situation and that of Japan back in the 1990s.
Back then, the collapse of an asset bubble made room for a decade-long cycle of stagnation and deflation. Traditionally taken to have taken place between 1991 and 2001, the period received the moniker “The Lost Decade.” However, other analysts have talked about the “Lost 20 Years” that include the aughts, or even the “Lost 30 Years” to include the 2010s as well, as the phenomenon continued. The reason for the comparison is also that the economies of the two nations are quite similar. During the late 1980s, Japan established itself as the world’s largest economy and became an export powerhouse.
However, it’s still too early to say if the outcome will be precisely the same since the situations are ultimately different. It’s clear to see, however, that the negative trends will impact Bitcoin as well, especially considering that the coin wasn’t very robust to begin with.
Two-month lows
On August 17th, the Bitcoin price fell by around 8% in just ten minutes. The new price was below $26k, the lowest level the currency had recorded for the past two months. It was a dismal event for bullish investors, and while it soon recovered, it was only a partial movement upwards. Bitcoin is now even further away from the $30k milestone it hoped to not only achieve but surpass. Some exchanges saw the coin drop even further, temporarily hitting $24,715 before recovering above $26,000.
Regardless, this paints a clear picture of a marketplace that has still not recovered completely. Some blamed the shift on the fact that Elon Musk’s SpaceX wrote down the value of its Bitcoin assets and subsequently sold the cryptocurrency. Others considered that China’s Evergrande Group filed for Chapter 11 bankruptcy in New York as the catalyst for Bitcoin’s plunge. There are also those who believe the slide resulted from a combination of the two or that other factors might have also played a part.
One thing’s for certain, the plunge took Bitcoin’s market capitalization below $500 million for the first time since June 16th. This means that the drop has been quite significant and shaved off a large portion of the gains the Bitcoin environment recorded since the beginning of summer.
Possible rebound
Yet, the situation isn’t as dire as it was back in November and December 2022, and the market made an unprecedented recovery from that period. It’s not too much to imagine that the same could happen again. Historically, there has been a clear correlation between RSI dips under thirty and later price movements. Therefore, the price might have finally reached a support line that acted as a resistance for the past year.
According to researchers, when RSI drops below the threshold at thirty, there’s been an instant surge between 30 and 60%. This means that the ecosystem could soon expect such a price movement. Investors are now looking towards the $25k support zone, with the prevailing consensus being that a future rally is imminent. Many users have begun collecting assets to prepare for this bullish movement when the values climb exponentially.
Real Yield
The U.S. Real Yield and Bitcoin are experiencing the most considerable inverse correlation since April. The two figures are essentially moving in opposite directions. The correlation coefficient between BTC and the 10-year inflation-indexed security went negative in August, going to a level that had not been achieved in approximately four months.
When the Real Yields are negative, investors move towards getting returns from alternatives that offer high rewards but which could also be a little riskier, including crypto or technology stocks. When the figures are rising and positive, traders move to fixed-income securities.
The Bitcoin market has been difficult over the past year, with prices plummeting severely. Things have been better since the beginning of 2023, with values beginning to record gains yet again. However, it seems that there will still be hurdles along the way for the marketplace to overcome before regaining its previous values.
