Bitcoin’s price has fallen nearly 50% since reaching a lifetime high of $64,863.1 in April, leading many to believe the cryptocurrency’s so-called ‘long winter’ has arrived a little early.
The price collapse was precipitated by a Chinese crackdown on Bitcoin miners, the grease that keeps the machine running, and on cryptocurrency transactions that utilised the country’s financial system. Additionally, Elon Musk, the poster child for cryptocurrencies, turned against Bitcoin by raising concerns about the environmental impact of its mining.
It is critical to note that while China has prohibited Bitcoin mining, it has not prohibited the possession or transfer of Bitcoin. Earlier this year, the country’s central bank suggested that cryptocurrency could emerge as a form of alternative investment.
Tesla, run by Elon Musk, also maintains its own Bitcoin holdings after slightly reducing them in the March quarter.
Purchasing and selling cryptocurrencies has become more difficult in India as traditional banks withdraw support from cryptocurrency exchanges. The RBI’s ‘concerns’ about cryptocurrencies and its behind-closed-door nudge to banks to stay away from cryptocurrency exchanges have had an indirect impact on Indians’ ability to buy and sell cryptocurrencies.
While the excitement surrounding Bitcoin has waned somewhat in comparison to earlier this year, the cryptocurrency is still up more than 200 percent year to date. According to analysts, there are two significant reasons why the current selloff in Bitcoin is more about clearing retail froth than a terminal decline in interest, as was observed following the 2017 rally.
“We are in the midst of a bear market. That is not to say that Bitcoin is on the verge of extinction. Given that significant financial institutions have now invested in Bitcoin, my position is that it will not fail,” George Kaloudis, a CoinDesk research analyst, said in an email interview.
When the cryptocurrency’s market value-to-realised value metric rolls over from a peak, this is a common indicator of prolonged weakness in the market. At the moment, that ratio is nowhere near its all-time high. Bitcoin has previously experienced deeply entrenched bear markets, according to a report by CoinDesk Research.
Another metric that crypto analysts monitor to determine the market’s momentum is the Puell Multiple, which is calculated by dividing the total US dollar value of Bitcoins mined in a given day by the 365-day moving average. The metric is critical for comprehending Bitcoin’s market cycles.
The Puell Multiple for Bitcoin recently fell to its lowest level in a year, analysts say, indicating the asset’s severe undervaluation and lagging bear market sentiment.
While technical indicators suggest that the current bear market may be nearing an end, investor sentiment remains muted in light of China’s crackdown on Bitcoin miners. Kaloudis anticipates that China’s miners will quickly reopen, boosting sentiment in the asset class.
These miners are embedded in the Bitcoin ecosystem and have compelling economic reasons to continue mining. Thus, while these miners may cease operations within China’s borders, they will relocate elsewhere due to the highly mobile nature of Bitcoin mining operations.
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