On January 24, the price of Bitcoin fell below $33,000, its lowest level since July last year, and even though the price has now risen back to around $36,000, it is still down nearly 50% from its all-time high of $69,000 last November.
Along with this plunge, there are also the singing of major institutions.
JPMorgan Chase, which proposed a long-term bitcoin price target of $150,000 last year, said that this goal is unlikely to be achieved in the foreseeable future, and that the future long-term theoretical price target for bitcoin may be around $38,000, which is based on the relative volatility between gold and bitcoin and the size of the market.
World asset management giant Invesco is even more pessimistic, predicting in its 2022 top ten event prediction released last week that the bitcoin bubble will burst in the coming year, and the price may plummet all the way below $3,000.
1. Four plunges in three months
The crypto market from last year's limelight, to now a cry, it took only two months, how did this sudden change happen?
Fast back to January 10, 2021, Bitcoin reached a record $69,198, while the U.S. CPI data also reached a 31-year high. Under the dual effect of huge pressures on inflation and bitcoin's favorable effects, investors around the world continue to pour into the cryptocurrency market as a way to resist the increasing inflation.
At that time, the market was full of predictions that Bitcoin would surpass $100,000. DCG CEO Barry Silbert said that $100,000 is the only way for Bitcoin; Bloomberg senior strategist Mike McGlone believes that Bitcoin will hardly encounter resistance on the way to $100,000.
Contrary to expectations, Bitcoin plunged four times in less than three months:
From November 14 to November 18, 2021, the price of Bitcoin fell from $65,500 to around $57,000, a decline of 13%;
From November 29 to December 4, 2021, Bitcoin fell from $57,600 to $49,200, a drop of nearly 14%;
From December 27, 2021 to January 7, 2022, Bitcoin fell from $50,600 to $41,500, a drop of up to 18%;
From January 12, 2022 to January 22, 2022, Bitcoin fell from $43,800 to $35,000, a drop of up to 20%.
As of press time, the bitcoin price is trading sideways around $36,000. Looking back at the decline in Bitcoin, it is not difficult to see that its downward process is different from the past plunges, first of all, the contract position is not large, there is no explosion of more than 10 billion levels, and secondly, the exchange has not gone down, and the phenomenon of the needle that has been complaining has not appeared.
In short, this is an orderly exit of big money, not a retail stampede under the influence of previous news.
2. Institutions are bearish, and retail investors are bottom-up
As for whether the market will continue to plummet or bottom out after four plunges, everyone has a different answer in mind, just as everyone did when analyzing why Bitcoin plummeted.
For example, El Salvador, the first country to use Bitcoin as a fiat currency, has been bottoming out in this round of plunge, buying 100 BTC on November 26, 2021, 150 BTC on December 4, 2021, 21 BTC on December 21, 2021, and 410 BTC on January 21, 2022, for a total of 681 Bitcoins.
In this regard, many retail investors joked that the president of El Salvador was Naibu Bukli as "the man who took the whole country to stud", and Naibu Bukley was very self-deprecating and posted a photo of himself wearing a McDonald's uniform on Twitter, meaning that after the bitcoin plunge, he had to work at McDonald's to earn the minimum wage.
In addition to the JPMorgan Chase and Invesco we mentioned earlier, analysts at digital asset research firm Quantum Economics believe that cryptocurrencies such as Bitcoin will have "volatile and directionless transactions" in the short term and may weaken further in the future. UBS analyst James Malcolm directly said that cryptocurrencies will usher in a cold winter, because according to UBS data, short-term holders of bitcoin are now close to zero.
Prediction is easy, just say the result. But the analysis is difficult because either explanation seems to be self-explanatory, such as the decline in Bitcoin's hashrate due to the previous unrest in Kazakhstan, concerns about liquidity under the Fed's interest rate hike expectations, and increased regulation around the world.
The author prefers the latter two, that is, the Fed's interest rate hike expectations and the tightening of global regulation have jointly caused Bitcoin to turn from bull to bear.
3. Fed interest rate hikes and global encirclement
If we look back at bitcoin's current bull market, we will find that it officially began in April 2020, when the global epidemic broke out, the Federal Reserve cut the guidance interest rate to between zero and 0.25% to save the stagnant economy, and then opened unlimited quantitative easing, resulting in a flood of market liquidity, bitcoin as one of these capital flows, thus opening a two-year bull market.
However, the Fed said on January 26 of this year that it intends to raise the guide rate from March onwards, taking into account the improvement in employment conditions and the possibility of sustained high inflation. This means that global inflation is expected to ease, and Bitcoin's role as a product of the inflationary economic background will naturally be weakened, as the beneficiary of the flood of liquidity, its inflows are facing tightening, which is an intrinsic link between Bitcoin and Fed policy.
Although the Fed has mentioned interest rate hikes more than once in the past, it has not made substantive moves, but according to the statement of the Fed's interest rate meeting and the panic performance of US stocks, it is almost certain to start a rate hike in March. After all, the more the routine of the wolf comes, the more it does not work.
As for the attitude of countries around the world to the crypto market, it is already an embattled situation.
Needless to say, since May last year, mining farms in the domestic mining cities of Sichuan, Yunnan, Xinjiang and Inner Mongolia have long been shut down, and major cryptocurrency exchanges have also withdrawn or shut down the domestic market.
Globally, cryptocurrencies are also being squeezed: SEC President Gensler said last week that he hoped cryptocurrency trading platforms would take steps in the coming months to be more directly regulated by the Washington financial regulator; the central bank of Russia, the world's third-largest mining nation, last week proposed to ban the mining and circulation of cryptocurrencies; the EU's top financial regulator called for a ban on the main model of bitcoin mining across the EUROPEAN Union; and the European Securities and Markets Authority also said that bitcoin mining has become one of Sweden's "National issues"; regulators in the United Kingdom, Spain and Singapore also urgently said that they should strengthen the regulation of promoting crypto assets.
All of this is sending a signal to the market that Bitcoin is already in a bear market. Such a situation is also due to the nature of Bitcoin, a "currency" that exists outside the construction of a sovereign state, and the monetary credit does not come from the endorsement of the sovereign state, and you cannot expect it to be supported by any sovereign state.
Of course, this is precisely where Bitcoin can continue to exist - it is more independent and autonomous, and it is difficult for sovereign countries to completely prohibit the holding and trading of Bitcoin. As Nietzsche said in The Twilight of the Idol: "The things that don't kill me will only make me stronger."
Bitcoin has been testing this phrase for more than a decade. For the foreseeable future, this validation will continue.