Crypto Markets Witness Significant Losses as Price Drops Below $20,000
The crypto-verse was dealt a huge blow today as the price of Bitcoin plunged below the $20,000 threshold. This marks the first time the leading cryptocurrency has seen such a sharp decline in two months, with the collapse of the crypto-friendly Silvergate bank largely being held responsible for the selloff. There are also speculations that increasing regulatory scrutiny and worsening macroeconomic conditions for risky assets are to blame.
Mounting Pressure Facing Cryptocurrency Markets
The start of 2021 had been looking very strong for digital assets, yet investors have found themselves facing an ever-growing number of risks that have been putting a damper on sentiment towards cryptocurrencies. The recent liquidation of Silvergate was just the latest in a long line of systemic failures, leaving market participants to question whether the crypto space is on the brink of seeing all its gains from 2021 vanish. This has caused the overall market capitalisation of cryptos to dip below the $1 trillion mark for the first time in two months.
Hawkish Fed Brings Further Pain
Aside from the systemic issues, macroeconomic developments have also been having a negative effect on risky assets. Federal Reserve Chair Jerome Powell’s recent comments on the speed and impact of future interest rate hikes have been particularly troubling, leading to a selloff in cryptos. Bond markets have also been showing signs of worry about the impact of a tighter tightening on the US economy, with the US yield curve inversion reaching its highest level since 1981.
US Budget Proposal Sparks Concerns
The US Treasury Department’s budget proposal to impose a 30% excise duty on energy costs for crypto mining facilities has also raised alarm bells. This could be a move to reduce the number of US mining firms, who are accused of causing environmental damage and raising energy costs without providing any real economic benefit. Should the bill pass, miners could see their margins squeezed, potentially leading to the closure of many operations.
In addition, US authorities have transferred $1 billion worth of Bitcoin seized from criminal sources to government-controlled wallets, raising fears that a potential sale of such a large amount could cause a huge drop in Bitcoin prices.
Bounce or Capitulation?
Technically speaking, BTCUSD has now hit a two-month low after falling below the $20,000 mark. However, the 200-day simple moving average has been able to prevent further losses. This leaves Bitcoin at a critical crossroads, with a decline below the 200-day SMA potentially leading to devastating losses, though an upturn due to oversold conditions is still possible.
Should the price decline further, the next major resistance level will be at $19,700, followed by $18,370. On the other hand, if the price manages to recover from the 200-day SMA, the initial obstacle will be the $21,550 mark, with the $23,980 area posing a more significant challenge.
