Ever since the significant fall in the prices of Bitcoin and other cryptocurrencies, obituaries are being written by cryptocurrency skeptics around the world. Some of these skeptics are celebrating the fall as if it is an end to the saga of Decentralized Finance or DeFi which has caught huge attention, recently. The silver line in the recent fall in Bitcoin prices is that it has proved DeFi that does not rely on central financial intermediaries or traditional mechanisms work quite efficiently.
At the time of writing this story, Bitcoin is trading at $37,930 which is nearly 20% recovery from the lows of $30,201 it made on the Wednesday i.e. 19th May, 2021. The Black Wednesday witnessed huge volatility where Bitcoin corrected nearly 25% intraday. The cryptocurrency opened at $38,575 and made the high of $39,023; however, could not sustain at those levels and started falling sporadically to make the low of $30,201. Needless to say Bitcoin recovered quite well intraday as it went up to close at $34,923 and from then onwards it has been trading above this level.
Correction was imminent
There is hardly any doubt that the way Bitcoin’s prices were zooming up to dizzying heights, it could forever. The correction was looming, the question was always, when? Not long ago, Bitcoin was trading around $6,000 in April 2020 and within a year’s time, the exchange rate went well above $63,000 in April. There are hardly any other instruments or assets that receive more than ten times increase in their value. As it is being suggested by some Bitcoin fund managers, the much needed correction could be an opportunity for the investors who missed bus the last time. They are suggesting for building up a long term portfolio of Bitcoin using the traditional method of SIP.
Is Elon Musk the Villain?
Although Elon Musk is someone who has always been a darling of pro-DeFi people and when he supported the cryptocurrency, they became huge fan of the maverick businessman and innovator, after the collapse in Bitcoin prices, he has become a villain for a lot of them. The whole love and hate story has a background and sordid story wherein Musk is being accused for manipulating the prices. There are also news stories floating that Musk may have sold all his Bitcoin holdings.
Not long ago but in February this year Elon Musk’s company Tesla announced it would buy $1.5 billion worth of Bitcoin, this contributed exponentially in the rise of Bitcoin’s prices. Later on when Elon Musk tweeted that his company would accept the cryptocurrency as payment for electric cars, there was nothing that could have stopped Bitcoin making new highs. All this while it appeared Musk was pro-Bitcoin and he would never ditch the idea; however, it did not take him long as all of sudden he announced that since Bitcoin mining is not eco-friendly, he has changed his mind.
Now, the question is, did Musk not know how Bitcoin mining is done? Or did he just dupe the ordinary investors by timing the market and getting out after making hefty profits? This is not new fact that Bitcoin mining is consuming immense electricity. In fact, a report from Citigroup Inc. claims that as of mid-April, global power demand by the Bitcoin network probably reached an annualized 143 terawatt-hours which is more than Argentina’s total electricity generation in 2019.
Chinese Govt.’s crackdown on Cryptocurrencies
Although China is hub for cryptocurrency mining, the Chinese Government has always held negative stance on cryptocurrencies as according to their official stand the virtual currencies put potential risk to the domestic financial system. Earlier in 2014, financial regulators in the country banned Bitcoin transactions by financial and payments institutions. However, it must be noted that Chinese government is against Bitcoin not just because it poses risk to their existing financial system but also as Bitcoin mining activities are consuming huge energy and emitting mammoth greenhouse gases.
Way Ahead for Bitcoin
As ace value investor, Warren Buffet, the Oracle of Omaha says about Bitcoin, as long as there are speculators and buyers, the value of the cryptocurrency would keep on going up. If we make sense from the latest decline in the Bitcoin’s value, it appears as soon as it $30,000 mark, retailers entered again as they see some value in it or maybe they are going through Fear of Missing Out or FOMO. They missed the last rally in Bitcoin, they don’t want to miss this time.
From the point of view of technical analysis, Bitcoin has support near $30,000 and one upside probability towards $45,000 is still there which could work as resistance. Although the broader uptrend is weakening, the first challenge the cryptocurrency has upfront is trade above $40,000 which is not happening for now. It is making lower lows in daily chart.
Greed and Fear Meter in Bitcoin
A large number of Bitcoin dumping is being done by retailers who are fearful of the further crash. However, following what Warren Buffet often suggests, ‘buy when everyone is fearful and sell when everyone is greedy’ could definitely help in the current situation. Although the total value of the cryptocurrency market has fallen significantly and Bitcoin has lost nearly $800 billion over this period in terms of market cap, it is still trading at great value and the early investors are still not in loss.
For the long term investors, this could definitely be an investment opportunity as the recent fall is not one of the cases, it has happened with Bitcoin before. Earlier in 2017, the value of Bitcoin went up from the lows $1,000 to nearly $20,000 and then fell again to the levels of $6000. Especially after the entry of institutional investors in Bitcoin, there is hardly any doubt that it would not have any takers in long run unless of course the US government bans it outright. Despite several innuendoes from the US govt. to regulate the cryptocurrency and them mulling their plan to launch their own digital currency, so far nothing has happened on that front.
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