What comes next after the recent bitcoin price crash?
By John Shepard
12:53, 25 May 2021
Bitcoin (BTC) has seen its price crash by more than 50% from the all-time highs set this year with the coin dropping as low as $30,000 at one point.
The cryptocurrency market had been booming into late-April, but prices of altcoins have been hit hard since the bitcoin price crash.
What has been happening to BTC so far in 2021?
Bitcoin’s price soared in the second half of 2020 as the markets turned against the US dollar because of large stimulus spending. BTC moved through the stubborn $10,000-level, before it was able to break though 2017’s all-time highs to reach $20,000. Bitcoin, the world’s largest cryptocurrency, started 2021 at just below $30,000.
Bitcoin price news has been largely influenced by Elon Musk, with the Tesla (TSLA) founder indulging in a storm of tweets and developments regarding the cryptocurrency market. The move by Tesla to invest $1.5bn of its balance sheet in BTC was a gamechanger for corporate investment flows into BTC and many other big-name US stocks followed.
Another development came when Tesla decided to accept BTC in payment for its cars. However, the decision has since been reversed by the company over environmental concerns, but the market welcomed the move at the time. Bitcoin soared to new heights into April, with the coin soaring to record highs near $65,000.
Why is bitcoin dropping?
The bitcoin price slumped in response to the news that Tesla would no longer accept it. Attention turned to the high energy consumption involved in mining the coin as Musk criticised bitcoin’s carbon footprint. This could be a headwind for the cryptocurrency in the future, with investors suddenly looking to coins such as cardano (ADA), which consume less energy in their mining process, instead.
Those green concerns also aligned with talk of regulatory action in the US. China has also moved recently to clamp down on exchanges and mining activities as the Chinese government tries to clear the path for their own central bank digital currencies (CBDCs). As China is responsible for an estimated 70% of global crypto supply, its decision has added significantly to the ongoing crypto price crash.
Despite the bearish news, there is still interest from institutional investors. Ray Dalio, the founder of the world’s largest hedge fund, recently admitted: “I have some bitcoin.” Dalio believes there is a risk of the US dollar losing its reserve currency status. He also fears a 1970s-style inflationary problem.
“As you look at the budgets, and you look ahead, we know we’re going to need a lot more money, a lot more debt,” Dalio said.
“You need to borrow money? You have to print that. You need more money? So, taxes go up and that produces a dynamic. Now I can keep going on about what happens in that dynamic. It may be capital controls. I painfully learned in 1971 that it causes stocks to go up. It causes gold, bitcoin, real estate, everything to go up, because it's really going down in dollars. And that's the part of the cycle we’re in.”
Where to next for BTC?
So, will Bitcoin recover? And if so, how soon and how high can it go?
The price of bitcoin is already bouncing today after, once again, Elon Musk began talking to miners about standardised reporting for energy usage. This time alongside MicroStrategy’s Michael Saylor.
The Tesla CEO tweeted:
Spoke with North American Bitcoin miners. They committed to publish current & planned renewable usage & to ask miners WW to do so. Potentially promising.
— Elon Musk (@elonmusk) May 24, 2021
This latest development could even see the Tesla car payment do another 180-degree turn.
The price of bitcoin may become less reliant on corporate developments for the rest 0f 2021, with comments made by the likes of Ray Dalio being more of an influence. Markets have been on inflation watch after a recent surge in US price rises, but inflation is also picking up in Europe and elsewhere as the markets fret about shortages.
That could see inflation getting ahead of growth in the same way as it did in the 1970s, in what is known as “stagflation”. Now, that really could be a gamechanger for commodity prices.
Bitcoin technical analysis
So, what will bitcoin be worth after the summer? The answer depends on the factors mentioned.
The price is now heading back towards $40,000, and that will be the first real challenge for the coin, with the obvious next levels being $50,000 and the recently stubborn $60,000.
There is a chance that the coin could retreat towards the lows again to make a more solid base, so traders should beware of going all-in at the first bounce. It is likely that China and US regulators will also smell blood and may try to stir up further negative headlines.
On a technical level, the $30,000 price range is the 61.8% Fibonacci level from the March 2020 lows and the coin needs to find support there to continue higher.
What can traders expect from BTC for the remainder of the year? Check out our latest video in which David Jones, Capital.com’s chief market analyst, uses the bitcoin analysis to set up a suggested trade on the cryptocurrency.
Bitcoin price prediction
For the next few months, BTC may enter a period of consolidation after the recent damage.
Big investors may be hesitant to get involved with the recent regulatory push by the world’s two largest economic powers. There is also now a headwind of green energy issues that will challenge bitcoin.
But the real issue may be the inflation story. Cryptocurrencies may stutter in the near term, but as we head into the latter part of 2021, inflation may increase when the largest economies reopen fully.
That could change the outlook for the cryptocurrency market as investors respond to the value of the US dollar and inflation, rather than early-2021 analysis, which centred more on the arrival of big corporations, such as Tesla.
The irony is that cryptocurrencies have a limited coin supply and both outlooks would see big money chasing a small supply of coins in the favoured projects. For BTC, we will have to see if the energy issue remains a talking point. China may kick out many of the mining operations and that could create coin shortages again.
When choosing to invest in bitcoin or any other cryptocurrency, it is crucial to remember that the crypto market remains as dynamic as ever. Its high volatility makes it hard to predict what the price of the coin will be in a few hours, and even harder to give long-term estimates.
We recommend you consider the latest market news and trends, technical analysis and expert opinion before making any investment decisions.
Read more: Ethereum price prediction: the outlook for 2021 and beyond
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