When even a Bitcoin price drop of more than 22% is met with a collective shrug, you know this new asset class is truly like no other.
Last week, the Bitcoin price plunged from about $10,050 to $7,828 in just five days. And while Bitcoin owners weren’t happy about it, no one was panicking.
Imagine if the same thing had happened in the U.S. stock markets. A 22.1%, one-week drop would chop 6,000 points off the Dow Jones Industrial Average. The talking heads would lose their minds.
Drops like this cause panic among stock traders. The biggest two-day percentage drop in the history of the DJIA was 24.55% on Oct. 28 and 29, 1929. That most famous of market crashes launched the Great Depression.
But for Bitcoin, which has been particularly volatile of late, such a plunge fazes no one. The brief 10-year history of Bitcoin is packed with wild, often extreme price swings.
Bitcoin owners don’t let these swings bother them – not even the “crashes” – because over time, the price of Bitcoin has gone up dramatically. Remarkably, Bitcoin has endured several declines in excess of 80%, but each has been followed (eventually) by a rally that takes the price many times beyond the previous all-time high.
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Compared to those declines, 22% is a hiccup.
This most recent plunge was also predicted by several of Bitcoin’s technical analysts. Back in August, the “Markets Daily” e-letter produced by Coindesk warned repeatedly of a correction that could take the price of Bitcoin as low as $7,500.
All that said, it’s important to know why Bitcoin fell 22% in such a short span.
As is often the case with these sharp price swings, I suspect there was more than one trigger.
Let’s have a look at the most likely culprits…
Why the Bitcoin Price Plunged 22%
In no particular order:
- Bakkt Launch: The Bakkt exchange, owned by the Intercontinental Exchange (ICE, which also owns the New York Stock Exchange) started trading physically settled Bitcoin futures Monday, Sept. 23. But volumes were lower than expected. Some surmised the lack of demand sparked the Bitcoin sell-off.
- Technical Reasons: The technical analysts viewed $9,000 as a key support level. When that was broken, the Bitcoin price kept tumbling.
- Whale Trade: A post on Bitcoin subreddit showed evidence of the transfer and sale of $1.2 billion worth of Bitcoin within a one-hour period on Tuesday. A sale of that much Bitcoin in such a brief period would have accelerated a decline if it wasn’t the actual trigger.
- Trump Impeachment: The rush to start impeachment proceedings of U.S. President Donald Trump may have had a negative impact on the price of Bitcoin as well. Trump has continued to push the Federal Reserve to keep lowering interest rates. Lower rates weaken the U.S. dollar, which should push the Bitcoin price up. The Fed may be less likely to lower rates if Trump were removed from office.
Whatever the cause(s), the focus now needs to be on what comes next. Is the Bitcoin price setting up to drop further? Or will it rally from here?
I have several thoughts on this – and they may come as a surprise…
My Bitcoin Price Predictions
In the short term, don’t be surprised if Bitcoin slips a bit lower. Coindesk’s technical analysis says “the path of least resistance is to the downside” with a drop to $7,000 or lower possible.
Respected technical analyst Peter Brandt thinks Bitcoin could go even lower in the months ahead. “Just a wild guess, but I think BTC bottoms at $5,500 next Feb and then begins a bull move to $50,000,” Brandt tweeted on Sunday.
None of this changes the long-term view that I share with Brandt and many others – that Bitcoin, over the next couple of years, is headed much higher. Brandt cited $50,000; I believe it will hit $100,000 by 2021.
The long-term case for a dramatic Bitcoin rally hasn’t changed.
Progress continues on technologies like the Lightning Network that will make Bitcoin and other cryptocurrencies easier to use.
The increase of Bitcoin derivatives and the growing involvement of big Wall Street names will continue to give institutional investors new ways to invest in this asset class.
And perhaps most importantly, the halving of the block mining reward next May will reduce the supply of new bitcoins by half. Less supply and rising demand will drive a higher Bitcoin price.
For investors, that means Bitcoin is trading at a discount right now – and may become even cheaper in the months ahead. Stay alert for these “sales” as you build up your crypto portfolio.
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