Multiple indicators show that the market’s optimistic sentiment towards Bitcoin is dissipating.
In the second quarter of this year, the price of Bitcoin suffered a cliff-like decline, plummeting 41%, which was the fourth largest quarterly decline in more than a decade of history.
Some analysts believe that Bitcoin will be at a crossroads in the already-opened third quarter and will continue to face a series of risks including stricter regulation and high volatility.
“The hype enthusiasm has left the market”
The last time Bitcoin was sold so sharply was in the fourth quarter of 2018, when it fell 43%.
It is worth mentioning that this decline of Bitcoin did not occur in an environment where all asset markets fell generally. During the same period, the Standard & Poor’s 500 Index rose 8.2%, the Nasdaq Composite Index rose 9.5%, and WTI crude oil futures rose 24%. Even many Bitcoin investors’ underlying asset, the price of gold, also rose 3.3%.
“It is safe to say that the hype enthusiasm has left the market.” Quantum Economics founder Mati Greenspan said that this will have a more serious impact on Bitcoin than other assets, because “Bitcoin is mainly made by Driven by speculative emotions”.
In the first quarter that just passed, people continued to question the speculative enthusiasm for Bitcoin, energy use, risks and other issues. Many national regulatory agencies have introduced a series of measures.
The weakening of investor enthusiasm for Bitcoin investment is also manifested in the futures market. According to data from the bybt.com website, there are currently approximately US$11 billion in open interest, which is more than half less than the approximately US$28 billion at the peak of April 13.
The proportion of long bets and short bets has also begun to tend to be short. As of last Thursday, short positions and long positions accounted for 53% and 44%, respectively, and for most of June, the ratio of long and short positions was basically flat. In January of this year, the proportions of long positions and short positions were 53% and 47%, respectively, leaning toward long positions.
At the same time, the overall activity of the Bitcoin network also declined in June. Data from the research company Glassnode shows that the use of alphanumeric codes required to put bitcoins in or out of wallets has dropped from approximately 1.4 million at its peak on April 15 to approximately 500,000 on June 27. Set the lowest level since the beginning of 2019. The 7-day moving average data of active Bitcoin addresses it tracked also fell to 758165, the lowest level since April 2020.
In this regard, the research company IntotheBlock stated in a research report: “The speculative activity in the market has decreased dramatically, which means that the cryptocurrency market still has bearish sentiment.”
Continue to face “strong supervision”
Think Markets analyst Fawad Razaqzada believes that all this puts Bitcoin at a crossroads as it enters the third quarter. He said that Bitcoin still has some well-known supporters, such as Twitter founder Jack Dorsey (Jack Dorsey), but also some high-profile skeptics, such as stock god Warren Buffett.
“All these pulling factors are reflected in the current price of Bitcoin at around $30,000.” Razakada said, “Many people predict that the longer Bitcoin is under resistance at $40,000, the more likely it will eventually collapse. And it fell sharply to around $20,000.”
Market analyst Ryan Browne wrote on the 5th that Bitcoin will face “strong regulation” such as high volatility, environmental concerns, and review of stablecoins in the second half of this year. Blaine said that last week, the global crackdown on cryptocurrencies spread to the UK. British regulators have banned Binance, a leading digital currency exchange, from engaging in regulated activities.
A reporter from China Business News noted that in recent months, many countries around the world have intensively introduced regulatory policies for Bitcoin. The Central Bank of Mexico, the Mexican Ministry of Finance, and the National Bank and Securities Commission issued a joint statement on June 28, declaring that cryptocurrency is not its legal tender and its use in its financial system is prohibited.
Last week, the U.S. Financial Services Commission opened a hearing on the fanatical issue of the cryptocurrency market and intends to strengthen the supervision of the Bitcoin market. Bill Foster, co-chair of the U.S. Congressional Blockchain Core Group, also stated that the United States should pass legislation to authorize reverse transactions in Bitcoin.
As for the risk of continued violent volatility in cryptocurrency prices, Brian said: “People who are bullish on Bitcoin see it as a kind of’digital gold’-an asset that has nothing to do with broader indicators that can provide considerable in times of economic turmoil. While volatility may be a good thing when asset prices rise, it is a two-way street. At the same time, the tendency of traders who bet on Bitcoin with high leverage to be driven out of the market has led to violent fluctuations in Bitcoin prices this year. ”
In addition, Brian said, we cannot ignore the doubts surrounding the impact of Bitcoin on the environment. “Bitcoin mining equipment requires a lot of electricity to operate, and Bitcoin’s energy consumption has risen sharply in the past few years as the price of Bitcoin has risen.” He said, “Although Bitcoin critics have long warned of its huge Carbon footprint, but Musk brought this issue back to the fore this year.”
Citi’s also mentioned in a research report earlier this year: “At least, this may prevent some investors from holding Bitcoin. This may also stimulate government intervention and prohibit mining.”
Bryan also pointed out that the review of stablecoins will have the ultimate impact on Bitcoin prices. “The so-called stable currency is also facing more and more scrutiny.” Boston Fed Chairman Eric Rosengren recently stated that the stable currency Tether, one of the world’s largest digital currencies, poses a risk to the stability of the financial system.
Tether insists that each of its tokens is backed by a 1:1 USD reserve, which is to maintain price stability. Cryptocurrency investors often use Tether to buy cryptocurrencies as an alternative to the U.S. dollar. But some investors worry that Tether’s issuer does not have enough dollar reserves to justify its peg to the dollar. Bryan pointed out that for a long time, people have been worried about whether Tether is being used to manipulate bitcoin prices. According to a study, this token was used to support Bitcoin during the key price drop of Bitcoin’s surge in 2017.
In Bryan’s view, we need to beware of the increase in speculation in the cryptocurrency market in the second half of the year.
He cited, for example, that the cryptocurrency “Dogecoin”, which was just a joke at the beginning, attracted more and more retail investors looking for premium returns due to celebrity support, so it soared sharply earlier this year to reach Set a record high, value surpassed Ford and other major American companies. But since then, its value has depreciated sharply. For another example, a decentralized financial token (DeFi) called Titan fell to zero.
In addition, some analysts pointed out that it is necessary to be alert to the number of scams in the cryptocurrency market. It is these hype and selling activities that have caused retail investors to suffer huge losses.