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Dark clouds over Bitcoin. Will it price drop by a few thousands?

21 Nov 2019 15:53|Bartosz Grejner

"Bitcoin price decreased to about 7.5 thousand USD on Thursday afternoon. This is the lowest price in nearly a month, and at the same time it is a decline by about 400 USD below the 200-day moving average, one of the key technical levels, which is being carefully observed by market participants," writes Bartosz Grejner, Conotoxia Analyst.

A month ago, the Bitcoin price also slumped around the 200-DMA (at the time just over 7.4 thousand USD), however, it managed to increase back to about 9.9 thousand USD quickly. There are arguments to suggest that this time the scenario may not be repeated.

Seven great months went by and…

The price of the most popular cryptocurrency expressed in USD was below the 200-day moving average from the end of May 2018 to the beginning of April this year. For the past seven months, however, the price of Bitcoin was quoted above this moving index, which, by the way, included a three-fold increase in less than three months to about 13.8 thousand USD, i.e. the highest level since mid-January. The positive sentiment was related, among others, to the broad media interest in Libra, the cryptocurrency that Facebook intends to introduce.

For several months, the market received only positive information about it, including partnerships with such giants as Visa, Mastercard and PayPal. Increased media coverage has also increased the overall cryptocurrency exposure, and a greater number of their searches in Google usually has a positive impact on their prices. And it does not change the fact that in the long run, Facebook's cryptocurrency could weaken the broader digital currency market.

...fear about the financial system

In the back of the year, however, we have observed a gradual decline in positive sentiments. This is a result of the hearings of the head of Facebook in the US Congress and strong political concerns about the potential impact of the Libra on the financial system. Fears and doubts were sufficient for the aforementioned partners (and others) to withdraw from the project, putting quite a shadow on the whole cryptocurrency project undertaken by Facebook. Although the social media giant did not withdraw from the implementation of Libra, the date of its launch was undoubtedly delayed. It is even possible that this will not be possible (if at all) before the end of 2020, and the presidential elections in the USA in November next year may be one of the factors holding back the release.

Libra is the so-called stablecoin and its value was supposed to be dependent on the dollar, which differentiates it from most of the "traditional" cryptocurrencies, including Bitcoin. Its management by a single entity (Facebook) also stands out from the decentralised nature of Bitcoin and other similar ones. This decentralised character may, in a slightly longer perspective (e.g. several years) turn out to be the nail in the coffin of traditional cryptocurrencies if the largest central banks in the world embrace this technology more broadly. However, this moment will not happen very soon. China, however, plans to introduce its own central bank digital currency (CBDC) already in 2020. On the other hand, the Federal Reserve in the USA does not have such plans, and its head Jerome Powell in a letter to two members of the US House of Representatives stated, that "the characteristics that make the development of central bank digital currency more immediately compelling for some countries differ from those of the U.S.".

Bad omen for Bitcoin and others

The supply pressure may be put on the prices of "standard" cryptocurrencies in the short term. A drop in the Bitcoin from nearly 14 thousand to about 7.8 thousand USD also means a decrease in the profitability of cryptocurrency mining for entities operating on a smaller scale. The additional supply of sold Bitcoins may in the short term further suppress the price and bring back the quotations for many months below the 200-day moving average. In such a case, we could observe a return of the Bitcoin's trading to the range of about 4-6 thousand USD.

21 Nov 2019 15:53|Bartosz Grejner

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