Early Monday morning saw Bitcoin drop over 15 percent to below $50,000. The downward movement of the cryptocurrency came after it reached $58,300 over the weekend, a new high for Bitcoin.
The drop accelerated as President Biden’s Treasury Secretary, Janet Yellen, spoke at an event sponsored by the New York Times. During her speech, Ms. Yellen suggested Bitcoin was a “highly speculative asset” that is difficult to use for transactional purposes. Ms. Yellen went on to say that the energy needed to process Bitcoin transactions was “staggering.”
The entire crypto community followed suit as Bitcoin fell. According to the CoinDesk price index, Ether dropped nearly 10 percent over 24 hours, falling from $1,770 to $1,546. On Kraken, the 4th largest crypto exchange globally, Ether dropped by a full 64 percent, down to $700.00.
Although Bitcoin fell below $50,000, the top crypto by market value rebounded. It reached prices above $53,000, representing a drop of approximately 7 percent over 24 hours, according to CoinDesk 20 data.
In Paris, David Lifchitz, CIO for ExoAlpha, suggested the pullback could have been greater as the recent Bitcoin rally was looking overstretched. Lifchitz went on to say, “A correction could happen before reaching new highs.”
Bitcoin has seen a staggering rally in price over the last quarter, rising from $10,000 to $60,000 with only a bull market correction, and that was in the final two weeks of January.
The recent rise from $30,000 to $58,000 was steeper still, making a “cooling off” period overdue, even more so as the widely tracked RSI (Relative Strength Index), as well as several other technical analysis tools signaled an overstretched condition.
Technical indicators, such as the RSI, indicate Bitcoin is overbought, implying the possibility of a retracement, according to Simon Peters, an analyst at eToro.
Mr. Peters also pointed out a bearish divergence while warning of weakened upward momentum and the possibility of a price fall.
Rising inflation-adjusted bond yields in the U.S support the case for a pullback in the price of crypto.
According to data provided by the U.S. Treasury, the real yield for 30 year bonds has turned positive for the first time since 2020. The real yield for 10-year bonds has risen to -0.80, up from -1.05 percent seen as recently as January.
Should bond yields continue to rise, the U.S. dollar may go higher. This scenario puts pressure on Bitcoin and equities.
What Might be the Bottom for Bitcoin?
Joel Kruger, currency strategist at LMAX, suggests the pullback in price can easily extend to the former resistance level near $42,000. Kruger says markets tend to shake out weak bulls with a return to former support levels before turning around and extending the run.
January 8th saw Bitcoin turn lower from its high 0f almost $42,000. The following days saw prices drop to $30,000. When the electric vehicle manufacturer Tesla announced it had purchased $1.5 billion in Bitcoin on February 8th, this prompted a newfound resistance level. Cryptocurrency analysts suggest that other companies may emulate Tesla and buy Bitcoin. However, the analysts think other companies may wait for a price pullback before committing.
Lifchitz suggests that $50,000 may be the first stop for a mild pullback. He also suggests that a second pullback could take Bitcoin to $40,000, while $30,000 appears to be the bottom should things turn ugly in the short-term.
Analysts are divided on the possible magnitude of any impending price correction. The current consensus suggests that the cryptocurrency could eventually see new record highs above $60,000. With momentum skewed towards the bids, Bitcoin and Ethereum are still trading upwards.