Bitcoin has fallen below $ 40,000 and what is the future of the cryptocurrency market?

Late last night, another cryptocurrency sale took place, led, of course, by Bitcoin (BTC). At one point, its price fell below $ 40,000, which was the lower support level after the crash on Monday. Thus, as of September 7, the largest cryptocurrency has lost ¼ value, falling from $ 52,900 to 39,650. In the next few hours, the price was adjusted and at the time of writing this article, it is around $ 41,900.

The price of the second largest currency has also lost in value and from $ 3,900, as it was before September 7, Ethereum (ETH) can now be bought for about $ 2,800. The third cryptocurrency Cardano by market capitalization (ADA) has fallen below $ 2 and its price is currently just over the aforementioned amount.

Many are now wondering how it is possible for such drastic price drops to happen in such a short time, but let’s try to understand things rationally, item by item.

After China’s mining ban in May, when the biggest drop occurred, cryptocurrencies lost literally half their value. During the summer, they recovered, and Bitcoin broke the limit of $ 50,000 again in August, reaching as high as $ 52,900, followed by a drop to 44,000. We have already written about how gullible people, who are just entering the market and have neither experience nor capital, very naively approach leverage trading, ie the way of trading where they borrow funds from brokers, ie from exchange offices.

On the other hand, these liquidations of future contracts can only be triggers for the otherwise present fear and caution of other traders because we have seen that after their expiration there is a panic sale of those who are not bound by leverage contracts. On the other hand, whales (entities that own 1000 - 10,000 Bitcoins) have enough room for manipulation, since they entered the market early, ie. when the price of Bitcoin was below $ 5,000.

In the 10-year history of cryptocurrencies, such and even larger declines (or corrections as analysts like to say), have been many, so this one is not surprising, and it is interesting that in the last four years every September ended in red, only for the market to begin recovering in October. This pattern has been going on for years and some analysts have created new tools to estimate how much and when Bitcoin will grow.

Thus, they predicted that according to the so-called stock-to-flow model by the end of this year to reach values ​​of $ 100,000, and in the spring as much as 135,000. However, other analysts, ie those who are less optimistic and who do not see the logic in this model, claim that the bull market, which started in August, did not actually exist. Pessimistic (conditionally speaking) analysts say that this year's jump in Bitcoin from 29,000 to 40,000 and then to 50,000 dollars was actually a "dead cat bounce". This is a term used in trading, and it literally expresses the possibility that even a dead cat can run, and then fall back to the floor soon after.

So, at the moment, we have two opposing sides of analysts, the optimistic (bullish) and the pessimistic (bearish) ones, but it should certainly be noted that the former are in the vast majority. For those who don’t know, the Bull market marks a trend of rising prices and Bear declining. It is an analogy with a bull, which when attacked raises its head and horns upwards, while the bear first rises to its hind legs and then attacks by throwing itself at the victim.

It is interesting that the proponents of the thesis that we are still in the Bull market explain this situation, ie connect it with the fall of stock indexes, and the latest affair with the Evergrande group in China, which went bankrupt and caused the real estate market to collapse. Truth be told, the Evergrande Group has been a realistically timed bomb since a few years ago, having built a whole host of ghost towns in China. Namely, huge funds were invested in the construction of new apartments, but the market wanted the jobs not to move to those cities, which resulted in many years of decay of empty apartments.

 It is not yet known whether the Chinese government will save the Evergrande Group, which is why there is fear of a new financial crisis, similar to the one in 2008 when the US real estate market collapsed and caused a domino effect in the rest of the world. Should we even mention 1929 and the collapse of Wall Street?

So, if the Chinese intend to harm the American and thus the European economy, Evergrande is an opportunity not to be missed, but it is hard to imagine how much it all makes sense. Namely, if the economic crisis affects the rest of the world, the Chinese economy, whose foundations are literally buried in exports, will inevitably fall, which means that it will lose the market.

And what does the whole Evergrande group story have to do with cryptocurrencies now? Personally, I think there is none, but the most optimistic analysts and agitators see it as a justification for the current drop in prices. It is clear that this situation has caused fear, but shouldn't that be the reason for investing in cryptocurrencies, which are independent of central banks? Realistically, the crackdown in May was an objective reason for fear and declining value, as 70% of Bitcoin miners were located in China, but now things are a little different.

Now, there is a third group of analysts who believe that Bitcoin will soon encounter "rotating", which means that it will lose its dominance. Its share in the total cryptocurrency market is currently 41%, with a further downward trend. These analysts see the salvation of the market in the so-called altcoins, ie alternative cryptocurrencies, whose market capitalization is much smaller than Bitcoin. Those who follow the issue could conclude that altcoins generally grow at a much higher rate than Bitcoin, but when they do fall, they also fall faster. Nonetheless, these analysts believe that Bitcoin has become too huge and too sluggish and that altcoins could be a better source of income.

We'll see who's right in a few weeks, as optimistic stock-to-flow analysts have predicted that the price of Bitcoin will be around $ 65,000 in October, over 80,000 in November, to approach the magic number of 100,000. If this scenario materializes, altcoins will also grow at a much higher rate.

Pessimistic analysts don't really have a model for calculating a possible drop in the price of Bitcoin, or at least a slowdown, but they often point out that it is closer to the price of $ 10,000 than $ 100,000. Of course, these speculations are not supported by any concrete analysis or graphs. Those who use mathematics and risk-management tools more remain cautious in their forecasts and advise gradual investment. Namely, if the current price of Bitcoin has really reached the bottom this year, and according to all analysis and comparisons with previous graphs, it should be so, they advise careful investment of smaller amounts until you see in which direction the price is moving. Don’t forget that if the support level of $ 40,000 doesn’t last for the next few days, the price can very easily drop to $ 37,000.

As for the fear of regulation, and it is often cited as a threat to cryptocurrencies, it should be said that more and more analysts believe that it is actually necessary and desirable, precisely because such things do not happen, or that big fish accumulate billions on gullible newcomers. That is why we advise you to stay away from leverage trading because it has long been proven in stock trading that 70% of those who trade in this way, make a huge loss, and many are put in a situation where they have to sell their homes. And the reason why their losses do not bring down the market, as is the case with cryptocurrencies, lies precisely in regulation.

Disclaimer:

All analysis and/or assessments in this text are the subjective opinion of the author and do not constitute investment advice. If you decide to invest in cryptocurrencies, you do so at your own risk and based on your own assessments and research.

By: Amber V. - Zexron