How Low Will Bitcoin Go? BTC Dives Nearly 20% over 7 Days 

Friday, 22/01/2021 | 11:00 GMT by Rachel McIntosh
  • Bitcoin's weekly loss is the worst one the coin has seen since September 2020.
How Low Will Bitcoin Go? BTC Dives Nearly 20% over 7 Days 
FM

After Bitcoin hit its latest all-time high over $40K earlier in the year, the cryptocurrency has seen a few minor dips. At one point, analysts expressed concern that if BTC could not solidly recapture the $35K mark, it may be in for further drops.

Now, it seems those 'further drops' have arrived. According to Reuters, Bitcoin fell to a three-week low of $28,800 early in the Asia session before it stabilized around $32,000. According to data from CoinMarketCap, the drop added to a 17.94% percent dive that has taken place over the last seven days, BTC’s biggest weekly drop since September.

Bitcoin’s rise over the last several months has been strongly fed by a narrative that includes several factors. First, that institutional cash is firmly footed in the price of BTC; second, that BTC is increasingly seen as a hedge against inflation; and third, that retail investors are savvier than in previous years (and thus, less likely to 'panic sell.')

However, this latest drop may be somewhat antithetical to that narrative. What caused Bitcoin’s price to fall, and what is next?

Was There a Successful Double-Spend Attack on the Bitcoin Network?

Doug Schwenk, Chairman and Chief Executive of Digital Assets Research (DAR) told Finance Magnates that the drop can partially be contributed to “a discussion of a potential double-spend in Bitcoin.”

Doug Schwenk, Chairman and Chief Executive of Digital Assets Research (DAR).

”This could be a sign of a serious security issue, but appears to be a routine matter that was overstated,” Schwenk told Finance Magnates. “Still, the rumors are not reassuring to new market participants.”

What happened? A Tweet posted by BitMEX posted on January 20th said that “it appears as if a small double spend of around 0.00062063 BTC ($21) was detected,” the Tweet said.

In response to the report, Kyle Rodda, an analyst at IG Markets in Melbourne, told Reuters that while “you wouldn’t want to rationalise too much into a market that’s as inefficient and immature as bitcoin,” there is certainly “a reversal in momentum.”

“The herd has probably looked at this and thought it sounded scary and shocking and it’s now the time to sell,” he added.

Whether or not the Tweet was the cause of major this “reversal of momentum”, a number of cryptocurrency analysts have pointed out something rather significant: the double-spend did not actually happen.

While Two Versions of the Same Transaction Were Broadcast onto the Network, “Only 1 Will Ultimately Be Accepted.”

Cryptocurrency trader and commentator, Hasu explained in a blog post on Deribit that “occasionally, two mining pools find a new block at about the same time, and these blocks have the same accumulated difficulty.”

“Then some nodes switch to one block, and other nodes switch to the second block,” he continued. “For a short time, the Bitcoin network is then bifurcated. But, odds are that the bifurcation is resolved once the next block is found.”

In other words, the Bitcoin network operates such that sometimes, transactions are momentarily duplicated. However, this is usually corrected in a matter of minutes.

Indeed, Lucas Nuzzi, Network data product manager at CoinMetrics, explained in a series of tweets that while there were multiple versions of a single transaction broadcast on the Bitcoin network with different amounts of fees, “ONLY 1 will ultimately be accepted.”

Nuzzi chalked up the seemingly large amount of concern around BitMEX’s tweet as “a wake up call for crypto media.”

“BitMEX Research is doing an amazing job for the community. Their depiction of what happened was accurate. Unfortunately, their post was grossly misrepresented for clickbait,” he said.

Is the New US Presidential Administration Affecting BTC Markets?

However, while the BitMEX Research tweet and the media cycle that followed it may have contributed to BTC’s price drop, analysts believe that there are other factors at play.

Schwenk pointed out to Finance Magnates that some of the anticipated regulatory behavior by the Biden administration may also be showering a bit of rain on Bitcoin’s parade.

“We have news of a crypto-savvy but perceived-to-be-strong-regulator pick for the SEC, Gary Gensler, and negative comments by Janet Yellen in her confirmation hearing,” he said.

Mark Grabowski, Associate Professor at Adelphi University and author of Cryptocurrencies : A Primer on Digital Money, told Finance Magnates that “Treasury Secretary-to-be Janet Yellen's negative comments on cryptocurrency” may have spooked Bitcoin markets.

Mark Grabowski, Associate Professor at Adelphi University.

Yellen: Lawmakers Should 'Curtail' the Use of Cryptocurrencies Because They Are 'Mainly' Used for Illegal Activity.

Indeed, during her confirmation hearing on Tuesday, January 20th, Yellen suggested that lawmakers should 'curtail' the use of cryptocurrencies because of the belief that they are 'mainly' used for illegal activity.

"Cryptocurrencies are a particular concern. I think many are used - at least in a transaction sense - mainly for illicit financing,” she said. "...I think we really need to examine ways in which we can curtail their use and make sure that money laundering doesn't occur through those channels."

Yellen’s comments come just a week after ECB President, Christine Lagarde said that Bitcoin had been used for some "totally reprehensible money-laundering activity."

Grabowski said that investors heard Yellen, and may be taking her seriously: “Bitcoin has been dropping since then and the rest of the market is following,” he explained.

Grabowski also pointed out that “rumors about South Korean government regulations” coming to crypto markets “arguably precipitated a big recession in early 2018, and the U.S. is an even bigger crypto market.”

Therefore, uncertainty over what the US government might have in mind for crypto markets could be contributing to Bitcoin’s dive.

“Government regulations may actually help cryptocurrency in the long run, but they invariably hurt the market in the short term,” Grabowski explained, adding that “perhaps the one thing that most Republicans and Democrats in Congress seem to agree on is that more cryptocurrency regulations are needed.

”Market Correction [Is] a Natural BI-Product of the Growth of Cryptocurrencies.”

However, other analysts believe that the recent drop is much less forward-thinking than what may or may not be in store for markets over the next four years.

Jack Williams, Founder and Chief Executive of B4U Financial, told Finance Magnates that “I think that the drop in value is tied to profit taking, as many bought bitcoin at a substantially lower price and now wanting to reap the profits.”

“Now that the presidential drama has passed, those that acquired bitcoin as a hedge are liquidating some of this inventory and with higher supply, the price will go down.”

“It is not the lack of stability or utility of the other cryptocurrencies that is in play here,” he said. “I anticipated a market correction as a natural by-product of the growth of cryptocurrencies.”

Jack Williams, Founder and Chief Executive of B4U Financial.

Moreover, DAR’s Schwenk pointed to “an unwind of Leverage in some markets, profit-taking and buying of downside protection,” as possible contributing factors to Bitcoin’s drop.

Is BTC Headed to $20K?

But, how low could BTC go?

Schwenk pointed to a recent statement by Scott Minerd of Guggenheim, who is “widely followed by institutional buyers.” Guggenheim recently said Bitcoin probably topped for the year and could retrace to $20k: “I think for the time being, we probably put in the top for bitcoin for the next year or so. And we're likely to see a full retracement back toward the 20,000 level.”

Finance Magnates previously reported that crypto community member O_V Crypto Alien pointed out that BTC may fall as low as $23,500 to fill a CME gap that was formed in December.

‘CME gaps’ are phenomena in which Bitcoin markets make sudden moves outside of regular trading hours for CME’s Bitcoin futures markets. This results in a literal hole or ‘gap’ in Bitcoin price charts. When this has happened in the past, it has been observed many times that the Bitcoin price will eventually fall back to the level where the gap was formed. Thus, the retrace ‘fills’ the gap.

Therefore, because the gap is around the $23,500 zone, some analysts believe that Bitcoin is headed back toward $20K before a meaningful return to price levels above $40K are possible.

2017 All over Again?

While market conditions are indeed very different than they were in 2017, some analysts have drawn parallels between BTC’s most recent all-time high and the boom-and-bust cycle that took place 3 years ago.

Bitcoin’s new all-time high of roughly $41,000 this year was achieved on Sunday, January 10th. 12 days later, on January 22nd, the price is roughly $31.5K. This amounts to a decrease of approximately 23 percent.

The all-time high that Bitcoin reached in 2017 was achieved on December 17th, when it reached roughly 19,700. 12 days later, on December 29th, the price of Bitcoin had fallen to $14,880, a decrease of approximately 24 percent (only 1 percentage point difference).

After Bitcoin’s reach to $19.7K in 2017, the price of Bitcoin did not find a bottom until February 6th, 2018 (51 days later), when it hit roughly $6050. This amounted to a decrease of roughly 70 percent.

”This Has All Happened Before.”

If history continues to repeat itself, Bitcoin will not find a bottom until the first week of March this year, and, if Bitcoin loses as much as it did in 2018, the price would go as low as $12,300. While most analysts agree that this is highly unlikely, stranger things have happened.

Still, even while Bitcoin may not lose 70 percent of its value in the next few months, major market corrections are still par for the course when it comes to BTC.

Ben Perrin, host of BTC Sessions, told Finance Magnates that “through the 2017 bull market, Bitcoin experienced multiple 38% corrections.”

Ben Perrin, host of BTC Sessions.

Therefore, “even a drop all the way back to $25,000 would be within the realm of possibility - and totally normal for market conditions,” he said. “It remains to be seen if BTC will experience those types of drops given the shift in buyers from mainly retail in years prior to newfound institutional money in 2021.”

In other words, “this has all happened before... but many are simply experiencing it for the first time.”

“For a significant advantage navigating the headlines, simply look back through history.”

After Bitcoin hit its latest all-time high over $40K earlier in the year, the cryptocurrency has seen a few minor dips. At one point, analysts expressed concern that if BTC could not solidly recapture the $35K mark, it may be in for further drops.

Now, it seems those 'further drops' have arrived. According to Reuters, Bitcoin fell to a three-week low of $28,800 early in the Asia session before it stabilized around $32,000. According to data from CoinMarketCap, the drop added to a 17.94% percent dive that has taken place over the last seven days, BTC’s biggest weekly drop since September.

Bitcoin’s rise over the last several months has been strongly fed by a narrative that includes several factors. First, that institutional cash is firmly footed in the price of BTC; second, that BTC is increasingly seen as a hedge against inflation; and third, that retail investors are savvier than in previous years (and thus, less likely to 'panic sell.')

However, this latest drop may be somewhat antithetical to that narrative. What caused Bitcoin’s price to fall, and what is next?

Was There a Successful Double-Spend Attack on the Bitcoin Network?

Doug Schwenk, Chairman and Chief Executive of Digital Assets Research (DAR) told Finance Magnates that the drop can partially be contributed to “a discussion of a potential double-spend in Bitcoin.”

Doug Schwenk, Chairman and Chief Executive of Digital Assets Research (DAR).

”This could be a sign of a serious security issue, but appears to be a routine matter that was overstated,” Schwenk told Finance Magnates. “Still, the rumors are not reassuring to new market participants.”

What happened? A Tweet posted by BitMEX posted on January 20th said that “it appears as if a small double spend of around 0.00062063 BTC ($21) was detected,” the Tweet said.

In response to the report, Kyle Rodda, an analyst at IG Markets in Melbourne, told Reuters that while “you wouldn’t want to rationalise too much into a market that’s as inefficient and immature as bitcoin,” there is certainly “a reversal in momentum.”

“The herd has probably looked at this and thought it sounded scary and shocking and it’s now the time to sell,” he added.

Whether or not the Tweet was the cause of major this “reversal of momentum”, a number of cryptocurrency analysts have pointed out something rather significant: the double-spend did not actually happen.

While Two Versions of the Same Transaction Were Broadcast onto the Network, “Only 1 Will Ultimately Be Accepted.”

Cryptocurrency trader and commentator, Hasu explained in a blog post on Deribit that “occasionally, two mining pools find a new block at about the same time, and these blocks have the same accumulated difficulty.”

“Then some nodes switch to one block, and other nodes switch to the second block,” he continued. “For a short time, the Bitcoin network is then bifurcated. But, odds are that the bifurcation is resolved once the next block is found.”

In other words, the Bitcoin network operates such that sometimes, transactions are momentarily duplicated. However, this is usually corrected in a matter of minutes.

Indeed, Lucas Nuzzi, Network data product manager at CoinMetrics, explained in a series of tweets that while there were multiple versions of a single transaction broadcast on the Bitcoin network with different amounts of fees, “ONLY 1 will ultimately be accepted.”

Nuzzi chalked up the seemingly large amount of concern around BitMEX’s tweet as “a wake up call for crypto media.”

“BitMEX Research is doing an amazing job for the community. Their depiction of what happened was accurate. Unfortunately, their post was grossly misrepresented for clickbait,” he said.

Is the New US Presidential Administration Affecting BTC Markets?

However, while the BitMEX Research tweet and the media cycle that followed it may have contributed to BTC’s price drop, analysts believe that there are other factors at play.

Schwenk pointed out to Finance Magnates that some of the anticipated regulatory behavior by the Biden administration may also be showering a bit of rain on Bitcoin’s parade.

“We have news of a crypto-savvy but perceived-to-be-strong-regulator pick for the SEC, Gary Gensler, and negative comments by Janet Yellen in her confirmation hearing,” he said.

Mark Grabowski, Associate Professor at Adelphi University and author of Cryptocurrencies : A Primer on Digital Money, told Finance Magnates that “Treasury Secretary-to-be Janet Yellen's negative comments on cryptocurrency” may have spooked Bitcoin markets.

Mark Grabowski, Associate Professor at Adelphi University.

Yellen: Lawmakers Should 'Curtail' the Use of Cryptocurrencies Because They Are 'Mainly' Used for Illegal Activity.

Indeed, during her confirmation hearing on Tuesday, January 20th, Yellen suggested that lawmakers should 'curtail' the use of cryptocurrencies because of the belief that they are 'mainly' used for illegal activity.

"Cryptocurrencies are a particular concern. I think many are used - at least in a transaction sense - mainly for illicit financing,” she said. "...I think we really need to examine ways in which we can curtail their use and make sure that money laundering doesn't occur through those channels."

Yellen’s comments come just a week after ECB President, Christine Lagarde said that Bitcoin had been used for some "totally reprehensible money-laundering activity."

Grabowski said that investors heard Yellen, and may be taking her seriously: “Bitcoin has been dropping since then and the rest of the market is following,” he explained.

Grabowski also pointed out that “rumors about South Korean government regulations” coming to crypto markets “arguably precipitated a big recession in early 2018, and the U.S. is an even bigger crypto market.”

Therefore, uncertainty over what the US government might have in mind for crypto markets could be contributing to Bitcoin’s dive.

“Government regulations may actually help cryptocurrency in the long run, but they invariably hurt the market in the short term,” Grabowski explained, adding that “perhaps the one thing that most Republicans and Democrats in Congress seem to agree on is that more cryptocurrency regulations are needed.

”Market Correction [Is] a Natural BI-Product of the Growth of Cryptocurrencies.”

However, other analysts believe that the recent drop is much less forward-thinking than what may or may not be in store for markets over the next four years.

Jack Williams, Founder and Chief Executive of B4U Financial, told Finance Magnates that “I think that the drop in value is tied to profit taking, as many bought bitcoin at a substantially lower price and now wanting to reap the profits.”

“Now that the presidential drama has passed, those that acquired bitcoin as a hedge are liquidating some of this inventory and with higher supply, the price will go down.”

“It is not the lack of stability or utility of the other cryptocurrencies that is in play here,” he said. “I anticipated a market correction as a natural by-product of the growth of cryptocurrencies.”

Jack Williams, Founder and Chief Executive of B4U Financial.

Moreover, DAR’s Schwenk pointed to “an unwind of Leverage in some markets, profit-taking and buying of downside protection,” as possible contributing factors to Bitcoin’s drop.

Is BTC Headed to $20K?

But, how low could BTC go?

Schwenk pointed to a recent statement by Scott Minerd of Guggenheim, who is “widely followed by institutional buyers.” Guggenheim recently said Bitcoin probably topped for the year and could retrace to $20k: “I think for the time being, we probably put in the top for bitcoin for the next year or so. And we're likely to see a full retracement back toward the 20,000 level.”

Finance Magnates previously reported that crypto community member O_V Crypto Alien pointed out that BTC may fall as low as $23,500 to fill a CME gap that was formed in December.

‘CME gaps’ are phenomena in which Bitcoin markets make sudden moves outside of regular trading hours for CME’s Bitcoin futures markets. This results in a literal hole or ‘gap’ in Bitcoin price charts. When this has happened in the past, it has been observed many times that the Bitcoin price will eventually fall back to the level where the gap was formed. Thus, the retrace ‘fills’ the gap.

Therefore, because the gap is around the $23,500 zone, some analysts believe that Bitcoin is headed back toward $20K before a meaningful return to price levels above $40K are possible.

2017 All over Again?

While market conditions are indeed very different than they were in 2017, some analysts have drawn parallels between BTC’s most recent all-time high and the boom-and-bust cycle that took place 3 years ago.

Bitcoin’s new all-time high of roughly $41,000 this year was achieved on Sunday, January 10th. 12 days later, on January 22nd, the price is roughly $31.5K. This amounts to a decrease of approximately 23 percent.

The all-time high that Bitcoin reached in 2017 was achieved on December 17th, when it reached roughly 19,700. 12 days later, on December 29th, the price of Bitcoin had fallen to $14,880, a decrease of approximately 24 percent (only 1 percentage point difference).

After Bitcoin’s reach to $19.7K in 2017, the price of Bitcoin did not find a bottom until February 6th, 2018 (51 days later), when it hit roughly $6050. This amounted to a decrease of roughly 70 percent.

”This Has All Happened Before.”

If history continues to repeat itself, Bitcoin will not find a bottom until the first week of March this year, and, if Bitcoin loses as much as it did in 2018, the price would go as low as $12,300. While most analysts agree that this is highly unlikely, stranger things have happened.

Still, even while Bitcoin may not lose 70 percent of its value in the next few months, major market corrections are still par for the course when it comes to BTC.

Ben Perrin, host of BTC Sessions, told Finance Magnates that “through the 2017 bull market, Bitcoin experienced multiple 38% corrections.”

Ben Perrin, host of BTC Sessions.

Therefore, “even a drop all the way back to $25,000 would be within the realm of possibility - and totally normal for market conditions,” he said. “It remains to be seen if BTC will experience those types of drops given the shift in buyers from mainly retail in years prior to newfound institutional money in 2021.”

In other words, “this has all happened before... but many are simply experiencing it for the first time.”

“For a significant advantage navigating the headlines, simply look back through history.”

About the Author: Rachel McIntosh
Rachel McIntosh
  • 1509 Articles
  • 58 Followers
About the Author: Rachel McIntosh
Rachel is a self-taught crypto geek and a passionate writer. She believes in the power that the written word has to educate, connect and empower individuals to make positive and powerful financial choices. She is the Podcast Host and a Cryptocurrency Editor at Finance Magnates.
  • 1509 Articles
  • 58 Followers

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