Bitcoin Set to Record Record Second Quarter Price Drop

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Bitcoin prices are on track for a record second quarter percentage drop, weighed down by China’s crackdown, fears that the US Federal Reserve will begin to scale back its stimulus program, and continued demand for lower hedges.

The main cryptocurrency was trading at nearly $ 34,824 at 10:39 a.m. UTC on Wednesday (6:39 a.m. EST), down nearly 41% for the April to June period. The drop ends a four-quarter winning streak that saw prices rise six-fold to nearly $ 60,000, according to data from Bitstamp.

The historically strong quarter started on a positive note, with bitcoin hitting a record high of $ 64,801 as the Coinbase cryptocurrency exchange launched on the Nasdaq approached on April 14. However, the momentum stopped in the following weeks as retail investors struggled to do the heavy lifting. as a result of the sale by large investors.

The market therefore appeared weak and took a hit in mid-May after US electric car maker Tesla removed bitcoin from the list of payment alternatives, citing environmental concerns and disappointing hopes of widespread adoption by businesses. China’s reiteration of the crypto-mining ban and fears of a quick release from the Fed’s stimulus measures amplified the bearish movement, pushing prices to a low of then $ 30,000 in four months.

Bitcoin performance in the second quarter (Bitstamp / data wrapper)

Source: Bitstamp

Since then, bitcoin has traded primarily between $ 30,000 and $ 40,000, with the exception of a brief dip to $ 28,600 on June 22. Sentiment has turned quite bearish as evidenced by directionless trading following El Salvador’s decision to adopt cryptocurrency as legal tender. tender.

Additionally, fears of a sell-off persist, according to the so-called smile options, a chart created by plotting implied volatilities against options with various strike prices expiring on the same date. Implied volatility refers to investors’ expectations of price turbulence over a specific time period. It is influenced by the demand for call and put options.

Bitcoin options smile

Source: Genesis Volatility, @hodlandmotivate

The smile option for short and near-date maturities has a steep slope at strike prices below the current bitcoin price. This is a sign of relatively higher implied volatility or demand for options at lower strike prices than those at higher strike prices. In other words, investors continue to buy protective sales contracts that give the buyer the right but not the obligation to sell the underlying asset, in this case bitcoin, at a price. predetermined no later than a specific date.

Delta Exchange CEO Pankaj Balani doesn’t expect the bulls to make a comeback anytime soon.

“Bitcoin is in a phase of consolidation, and we believe that may extend until September,” he said. “Since its peak in April, institutional interest has weakened and there is a lack of liquidity on the part of businesses and retail buyers.”

According to Balani, the cryptocurrency remains vulnerable to any weakness on the macro front and could drop to the old support turned hurdle of $ 19,666 (December 2017) if there is widespread risk aversion.

Currently, traditional markets show no signs of weakening. Despite recent hawkish rhetoric from the Fed, the S&P 500, Wall Street’s benchmark stock index, is on track to end the second quarter up 8%, a fifth consecutive quarterly gain. Meanwhile, gold, a safe haven, wiped out most of its gains to trade just 2% higher for the quarter, according to data from TradingView.

The situation could change, however, if the US economy continues to accelerate, rekindling fears of an anticipated Fed tightening.

That said, some observers remain bullish and draw parallels with the price movement seen in 2013 when bitcoin rose from $ 250 to $ 45 in April, stopping the bull run abruptly, reaching four digits in November.

“While I don’t think the bottom is hit, the market looks like 2013 and bitcoin could see a mega-pump,” ConsenSys alumnus John Lilic, Polygon and Whale Dfinity adviser, told CoinDesk in a Telegram conversation.

Matthew Dibb, COO and co-founder of Stack Funds, disagrees with the 2013 scenario, saying the current market structure is totally different. He remains a cautious bull in the long run, however.

“From a technical analysis perspective, the second quarter decline is a pullback,” Dibb said in a WhatsApp chat. “Bitcoin is still at the stage of a parabolic breakthrough.”

A break out of the current range could cause a rally towards $ 85,000 by March 2022, Dibb said.

Also read: Power, privacy and Chinese digital currency

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