Bitcoin price consolidation continues amid negative news stories and futures liquidations
As Bitcoin surged past $40,000 earlier this month, many were extremely bullish, predicting a further rise to over $100,000 in the near future. This hasn’t yet manifested, as price dipped below $30,000 on Friday and currently stands at around $33,500.
This movement wasn’t unexpected though. Continued vertical growth in markets is very rare and we have often seen retracements like this in the past as investors take some profit leading to periods of consolidation. This happens in traditional market cycles as well, but tends to elicit more reaction from people when it happens to Bitcoin as it’s much more volatile.
There have been some news stories which could have influenced the recent dip, one being Janet Yellen’s less than welcoming attitude to Bitcoin. At her senate confirmation hearings last week, the Treasury Secretary and former FED Chair said: “Cryptocurrencies are a particular concern. I think many are used, at least in a transactions sense, mainly for illicit financing, and I think we really need to examine ways in which we can curtail their use…”
In addition to this, news of a potential “double spend” hit the headlines last week, based on a report from BitMEX research. Double spend is a critical flaw which means a user is able to spend the same Bitcoin twice, and would be a disastrous scenario for the cryptocurrency. The story has since been debunked, but that doesn’t mean it hasn’t affected the market. Augmented reality technology company, NexTech, announced on Friday that it had sold its treasury Bitcoin holdings of 130.187 BTC (worth almost $4.3 million) because of the double spend news.
Then there is also the impact of the futures market to consider. When highly leveraged traders have their positions liquidated, it can cause buying or selling pressure in the spot market, as the liquidations need to be settled with spot Bitcoin. Both the 10 and 20 January saw huge liquidations according to data from bybt.
As for the future, in the short-term we could see yet more volatility as a record $3.7 billion in Bitcoin options are set to expire at the end of this week. When a lot of options expire on the same day, market participants adjusting their positions for physical delivery of the underlying asset can lead to sizeable price activity around the expiry date.
However, this doesn’t seem to be dampening a lot of the bullish sentiment. Creator of the Bitcoin Stock-to-Flow model, PlanB, tweeted yesterday: “BTC could be $100K somewhere between April and September.” Also, Microstrategy recently purchased another $10 million of Bitcoin.