London, UK, 4th Oct 2021 – Victoria-Coins broker Tony Nikolau explains why bitcoin has been falling so much recently, despite its promising start at the beginning of the year. He states that there are many reasons for this plunge from investors shying away from riskier assets as well as the strengthening of the US dollar.
Victoria-Coins broker starts by saying that bitcoin has had a ‘rocky start to the year’ and has been falling for some time now.
Bitcoin made some moves over the last 24 hours, falling 2.99% to $42,603 from its high at around 1 PM EST today when it peaked at 4 pm on Sunday, December 17th for a difference between prices of 3%. This is still an impressive 47% increase since Saturday, October 27th which finds us right where we were back then with regards to Bitcoin’s price trajectory through 2021 so far – currently sitting just below our medium-term target level ($6k). Ethereum also declined strongly during this time frame but only by about 15-20bps whereas there was quite literally wholesale sell-off across virtually every other coin within circulation despite major coins showing relative strength given how closely correlated they are
There are two main factors behind this, according to the broker. The first is that bitcoin’s price has increased very substantially in such a short period of time which would be enough to make anyone hesitate before investing as it may prove to be too expensive and risky instead.
Investors are moving away from assets requiring too much risk in response to the inflationary policies of many major economies, mostly because investors are feeling uncertain about their future and where it lies with regard to unemployment, growth, and interest rates. There is a global trend towards protectionism and closed borders which will likely only serve to further exacerbate this downwards pressure.
The reasons behind this are due to investors shying away from riskier assets, as well as the strengthening of the US dollar. The US dollar has been strengthening lately due to the Federal Reserve, which has been increasing interest rates whereas other countries have been cutting them. Investors are therefore rotating into the US dollar, which is perceived to be a less risky store of value.
Investors are also shying away from bitcoin due to it being too expensive. This is despite the fact that its price has increased by 47% in under 3 months, which at that rate would mean it would be over $500k in less than three years. He says that he believes these two reasons are behind this plunge but there may be more that are yet to be found.
We continue to see the strengthening of the US dollar as a result of inflationary policies as well as growth. In this case, it is expected that the greenback will gain strength as other countries initiate more dovish monetary policies which Victoria-Coins broker believes will lead to higher inflation and economic uncertainty. Given how correlated Bitcoin is with the US Dollar (0.99), we expect this to have a similar effect on it as the US dollar strengthens and investors move away from assets requiring more risk – which is why we are so bearish at present with regards to BTC prices.
It cannot be determined whether BTC prices will slide below or not, but it is unlikely given the small size of the market when compared to other assets. We expect there to be a continued weakness in riskier assets such as Bitcoin which will likely cause BTC to continue its slide.
Bitcoin’s price may have been due for a little drop in light of market conditions but the overall long-term trend still points north. In any case, whether or not Bitcoin is due for a bigger fall – which Victoria-Coins broker does not believe it is – the overall outlook still remains bullish.
With the US dollar strengthening and interest rates rising, we believe that there will be a continued weakness in riskier assets such as Bitcoin. As a result of this, we continue to remain bearish on BTC prices and will remain so until further notice.
Hence it is yet to see how bitcoin evolves and makes a comeback in the market . It’s interesting to see how the market will respond in the days to come.
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