Bitcoin, the world’s largest cryptocurrency by market capitalization, has been experiencing a tumultuous ride in recent weeks. The virtual currency is registering its worst month since the collapse of Sam Bankman-Fried’s FTX empire as the euphoria around US exchange-traded funds for the largest digital asset subsides. The cryptocurrency is down 14 per cent in April, the most since it slumped 16 per cent in November 2022. This significant decline has left investors wondering whether it’s a cause for concern or a buying opportunity.
Several market factors are contributing to Bitcoin’s price plunge. One of the primary reasons is the recent Bitcoin halving event, which reduced Bitcoin miner rewards from 6.25 BTC to 3.125 BTC. This reduction in supply is expected to increase demand and drive up prices in the long run, setting Bitcoin on a path to a parabolic uptrend. However, the market has been slow to respond to this development, leading to a temporary decline in price.
Another factor is the market debut of spot Bitcoin ETFs in Hong Kong. While this development is expected to increase capital inflows into Bitcoin, it may take some time for the market to fully absorb the impact of this new investment vehicle.
Talking to Business Standard, Parth Chaturvedi, Investments Lead, CoinSwitch Ventures said, “Bitcoin as an asset class doesn’t trade in isolation and is affected by macro-economic factors. With US inflation higher than expected, investors are rebalancing their positions for higher interest rates, for a longer duration. This doesn’t bode well for risky asset classes and hence has impacted crypto prices adversely. Besides this, bitcoin prices had almost doubled since January on the back of Spot ETF inflows and the halving event. The downturn in prices was amplified by profit booking as well.”
Despite the current decline, technical analysis suggests that Bitcoin is still bullish. A bull flag formation on the daily chart indicates a potential ascent to 1,00,000 dollars or beyond. This technical formation is confirmed when the price breaks above the upper boundary of the flag to the upside, setting a target price by adding the percentage in the flag’s posts to the breakout point.
Should you invest?
Experts suggest caution. While Bitcoin’s price history has shown significant fluctuations, it’s also demonstrated remarkable resilience and potential for growth. However, it’s crucial to remember that the cryptocurrency market is highly volatile and can be affected by a wide range of factors, including global economic conditions, regulatory changes, and market sentiment.
First Published: May 01 2024 | 3:28 PM IST
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