After the euphoria of the first week of the year, where Bitcoin had rallied to $17,000 levels, it’s been a pressure pot since and the almost 40% fall since the 2018 high has had investors second guessing what’s on the horizon for Bitcoin and the cryptomarkets in general.
News of hacks, gunpoint thefts of Bitcoins and the ever changing shift in the regulatory landscape has ultimately seen money being pulled from the table.
With much of the declines coming from regulatory chatter, one does wonder what it will take to draw investors back into the cryptomarkets and Bitcoin in particular.
We are unlikely to hear regulators seal Bitcoin with their stamp of approval and take a softer stance on oversight, particularly with so much crime and speculation associated with a market that has grown enough in recent months to draw the attention of governments around the world.
Another factor to perhaps consider is the means by which Bitcoin and other cryptocurrencies have been purchased over the last 6-12 months, with credit cards being a common source of payment. As interest rates begin to creep up, the cost of funds is certainly going to rise alongside and we are likely to have passed the days of cheap money. If Bitcoin and the rest don’t cover the funding costs, which these lateral moves are unlikely to do, investors may have no choice but to sell out, further reducing demand for cryptocurrencies.
This is where there will likely be some connection between monetary policy and appetite for cryptocurrencies, the influence of centralization on the decentralized.
We’ve seen the influence that both governments and regulators have had on the cryptomarkets and soon, we may also see the indirect influence that Central Banks will have as rates begin moving up at a quicker pace. After all, those buying into the cryptomarket are entering with fiat money and fiat money is as centralized as it gets.
Bitcoin slipped 5% on Monday, to end the day at $11,101.07, recovering from an intraday low $10,991 hit in the final hours of the day.
Things haven’t improve for Bitcoin through the early part of the day, with Bitcoin down 1.62% to $10,982.23 at the time of writing.
While Bitcoin may have managed to recover from an intraday low $10,795, the very fact that Bitcoin has not managed to recover to $12,000 levels and sits at sub-$11,000 levels suggests that there may be more pain to come.
The lack of regulatory chatter may be somewhat disconcerting, with investors likely to prefer being kept aware of the intentions of governments and regulators, however painful the news may be. The recent silence may be just silence or, it could be the calm before the storm.
It wouldn’t be too farfetched for governments to ban the use of debt to acquire cryptocurrencies, particularly when such sources of funds brings contagion risk into the equation, however small the risks may be. A collapse in Bitcoin and the cryptocurrency markets would certainly weigh on the performing of loans that may have been used to fund cryptocurrency purchases.
Other possibilities include the delinking of banking platforms from cryptocurrency exchanges to make it difficult for prospective investors to buy into the cryptomarket. Whatever the outcome, regulators are likely to be looking to make it as difficult as possible to buy and hold cryptocurrencies.
As the week progresses, should the silence continue, there may be some upside, with investors unlikely to sit on the side lines for ever, but it’s going to be a testing time and for now, a rally looks to be unlikely at best.
For the day ahead, Bitcoin will need to make a move through to today’s intraday high $11,222.36 to avoid moving down towards sub-$10,000 levels and, while sentiment continues to be bearish, we will expect there to be some support at $11,000 through the afternoon, though the support is not coming from the futures market. The Cboe’s February contract is down $220 to $10,950 at the time of writing, which will pin back any major moves this morning.