Cryptocurrency update: Bitcoin tumbles to three month low

Bitcoin hasn’t come out swinging in 2022. The token has slumped with the bears fully in control.

Cryptocurrency update

Bitcoin bear market intensifies following $800m sell-off

Bitcoin started 2022 on a weak footing and that looks set to continue.

The hunt for BTC at $50,000 is back on. So much for $100,000 by the end of 2021.

The world’s most popular cryptocurrency dropped to a three month low in Asian trading this morning, falling below $41,000, as Wednesday’s sell-off intensified.

As much as $800m in long Bitcoin positions was liquidated on Wednesday, following the release of December’s FOMC meeting minutes.

In December, the Federal Reserve voted to accelerate tapering of its bond-buying programme and discussed aggressive rate hikes. This tightening of pandemic economic support caused a drop in equities, particularly tech stocks, upon the minutes’ publication. Bitcoin and crypto tokens appear to be following suit.

Bitcoin, despite being up over 300% across 2021, has struggled to regain momentum towards the end of the year. The bears are firmly in control of the market narrative.

The token fell through the $46,000 support level on Wednesday following the announcement, leading to as much as $7,000 being stripped off the price of Bitcoin futures.

At the time of writing, Bitcoin had reached $42,319, trading down 2.4% on the day. The daily low so far was $40,995.

BTC is a market bellwether. Its movements tend to affect the wider crypto market. This is the case today. Looking at the charts shows a sea of red. Ethereum, for example, is down 5.78% on the day. Polkadot has fallen 5.51%. Ripple is down 2.53%.

The Bitcoin Fear & Greed index, an indicator that gauges market sentiment, is at its lowest since July.

Volatility is never far from cryptocurrency trading. Boom and bust is the name of the game. Still, this doesn’t paint a particularly promising picture for BTC going forward.

Bitcoin bulls still eyeball $100,000 price on token’s value store potential

A number of investors are still feeling bullish in the face of Bitcoin’s current struggles.

Many still believe that the mythical $100,000 barrier can be breached this year. We heard this rhetoric in 2021 – although Bitcoin starts the year at a much higher price than it did in January of last year.

Goldman Sachs analyst Zach Pandl issued a research note to clients indicating Bitcoin’s potential to overtake gold as a store of wealth. The crypto vs. gold argument has been bubbling for some time. Backing from an institution like Goldman could tip the scales in digital tokens’ favour.

Pandl cited Bitcoin’s current $700bn market cap as a reason why the coin could be tempting for investors. Comparatively, the amount of gold held by investors as a wealth store comes to $2.6 trillion, according to Pandl.

“Bitcoin may have applications beyond simply a “store of value” – and digital asset markets are much bigger than Bitcoin – but we think that comparing its market capitalization to gold can help put parameters on plausible outcomes for Bitcoin returns,” Pandl wrote, as reported by Reuters.

As it stands, Bitcoin holds 20% of the world’s value store market right now. However, this has great potential to rise, according to Pandl, which could drag the token over the $100,000 line. The Goldman analyst suggests this price can be reached in Bitcoin can account for 50% of the global value store sector.

Kazakhstan situation hits Bitcoin

The current state of protest and social unrest in Kazakhstan could also be affecting Bitcoin’s price slide.

Kazakhstan’s government has resigned following mass unrest and civil protest triggered by exceptionally high fuel prices.

The Central Asian state is the world’s second-largest crypto and Bitcoin miner, accounting for 18% of worldwide supply. But with beleaguered President Kassym-Jomart Tokayev ordering telecoms companies to cut internet connections nationwide, Kazakh miners are now offline.

Kazakhstan is home to many coal mines. These offer a cheap source of electricity to power the energy-hungry mining industry. With internet connections severed, however, Kazakhstan’s mining infrastructure is in limbo.

This is the latest major miner to be hit since China’s 2021 crypto mining clampdown. Cryptocurrency mining operations are in the process of being shut down across China, which used to account for the vast majority of the world’s token supply.

Prior to this current state of emergency, Kazakhstan was mulling over its own mining ban. In many ways, this instability has been a bit of a gift for the nation’s governors in the sense it can now restrict mining through internet cuts – although this is unlikely to be the main reason why the Kazakh President ordered its closure.

Even so, the unfolding events may force crypto miners to seek pastures new. Some believe that Kazakhstan was only ever a step towards further western migration. Chances are many of the mining operations set up there were founded by those leaving China. Kazakhstan and China do share a significant land border after all.

The US is quickly becoming the mecca for crypto miners – but this may clash with President Biden’s environmental goals. Mining is notoriously energy-intensive. In 2020, Bitcoin mining alone consumed more energy than Sweden.

As it stands, the Kazakh internet cut has taken a substantial amount of mining rigs offline. It will be interesting to see how this situation develops.