Bitcoin jumped on Monday, after the cryptocurrency fell below its 2017 high over the weekend, but investors remained on edge thanks to a slew of negative crypto headlines and macro factors keeping pressure on sentiment.
The world’s largest cryptocurrency by market cap climbed above the $20,000 mark for much of Monday. However, it last edged lower by less than 1% to $20,005.46, according to Coin Metrics. Over the weekend, bitcoin fell as low as $17,601.58. Meanwhile, ether inched higher by less than 1% to $1,102.86.
While investors will welcome the rebound, bitcoin still sits 70% below its all-time high, hit in November. It’s down 57% year-to-date. Many have suggested a market bottom could be close, but with so much economic uncertainty remaining, bitcoin still has more downside potential, according to Yuya Hasegawa, a crypto market analyst at Japanese bitcoin exchange Bitbank.
“Bitcoin’s weekend dip was, to put it simply, not deep enough,” he said. “The macro environment has not really changed from last week’s FOMC meeting: there still has not been a clear sign of inflation coming down and the Fed may still drive the economy into recession by raising rates too aggressively or simply by failing to tame inflation.”
Will This Gain Last?
With bitcoin unable to hold convincingly above $20,000, industry watchers said the rally might be short-lived.
Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, said in an interview that unless the price of bitcoin closes above $23,000 on a daily time frame basis, “the odds are this is a dead cat bounce.”
The broader cryptocurrency market has been plagued by a number of issues in recent weeks, beginning with the collapse of algorithmic stablecoin terraUSD and associated token luna.
Attention has now turned to crypto lending companies that promise users high yields for depositing their digital coins. Last week, Celsius, paused withdrawal of funds for customers, sparking concerns that it is insolvent.
Cryptocurrency companies have announced rounds of layoffs amid the market downturn. Coinbase, a crypto wallet and exchange, said last week it will cut 18% of full-time jobs. A lending firm called BlockFi said last week it will lay off a fifth of its staff.
Macroeconomic factors including high inflation and upcoming rate hikes from the U.S. Federal Reserve are also weighing on the market.
“When inflation is on the doorstep and with rate hikes in the offing, the risks of a recession round the bend are high,” Charles Hayter, CEO of CryptoCompare said.
Is This The Market Bottom?
Giles Keating, director of Bitcoin Suisse, in a report on Monday said investors are close to a point where some of the excess leverage has been removed from the system and a bottom can begin to form.
Leverage refers to trading in which investors effectively use borrowed money to make trades. That means investors can get larger exposure to positions with less initial capital. But that’s seen as a risky means of trading. This is because it requires investors to ensure they have enough capital to meet the so-called margin requirements. If they don’t, their position is automatically liquidated. Those liquidations are seen as a big factor behind market moves.
Keating said there is still a risk of further liquidation, but he thinks the majority of the selling is over.
“Now some people are warning that we are still not yet there and that if we were to break significantly lower, that we’d see another wave of liquidations,” Keating said.