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Bitcoin Hits All-Time High, Then Drops Over 10%, All in One Day. What’s Next?
Key points
- Bitcoin surged above $69,000, hitting an all-time high, before falling more than 10% on Tuesday.
- Many analysts predict that the price of bitcoin will rise further, given the demand for bitcoin ETFs and the April halving event that will limit supply.
- It is unusual for bitcoin to reach an all-time high price so close to the halving; this usually happens within a year and a half of the halving.
- Bitcoin’s price could rise due to a rate cut by the Federal Reserve, but higher rates for a prolonged period could have a negative effect.
If you are a bitcoin (BTCUSD) investor, it was a wild ride on Tuesday. After briefly topping $69,000 at an all-time high, bitcoin quickly fell on likely profit-taking to just over $60,000 just hours later, before clawbacking back some of those gains.
As bitcoin surges again today, no one can predict which direction the price will ultimately go. Here are some clues that market observers are trying to decode to get a better picture of the cryptocurrency markets.
Demand pressure will continue as supply decreases
Inflows and trading activities in spot bitcoin ETFs have been hectic in recent days, especially for Blackrock’s iShares Bitcoin Trust (IBITS), which by the end of Tuesday’s trading day had already accumulated $10.6 billion in bitcoin since it began trading in January.
In terms of direct supply and demand effects, spot bitcoin ETF inflows, or demand, were more than 10 times greater than supply, or the amount of new bitcoin miners were generating on Monday, according to Gayatri Choudhury, an analyst at Bitwise Research.
Added to this is the halving eventwhere the amount of new bitcoins created every 10 minutes or so is cut in half, is expected to happen on April 20. Remember, the supply of bitcoin is limited to 21 million, and with fewer new bitcoins being created at a slower rate, the imbalance between supply and demand is what most people are betting on to drive bitcoin prices higher.
The rapid and furious rise may not be sustainable
Of course, not all cryptocurrency market observers see only blue skies for bitcoin.
“Things always look bullish at the peak. I was initially expecting this move higher when we were at the bottom of $30k, but I was expecting it to peak in the mid-to-upper $50k region. This extension looks like a top-out to me,” John Glover, chief investment officer at digital asset financial services firm Ledn, said in an emailed statement to Investopedia.
And Glover isn’t alone. JP Morgan analysts have indicated that bitcoin could fall to around $42,000 after the halving event. Others say the two factors (ETFs and the upcoming halving) that are driving prices higher are also the ones that are contributing to bitcoin price volatility.
Even with the greatest investment potential, there’s one more thing that could hinder a meteoric run from here on out: scale. When something gets too big, it’s hard to get mind-blowing returns. Even Warren Buffett admits That.
Bitcoin’s price has doubled in 18 days or less after three of its four previous all-time highs, Pomp Investments founder Anthony Pompliano said in an interview with CNBC, and while he expects Bitcoin to see higher prices thanks to ETFs and the halving, he doesn’t necessarily expect it to hit $140,000.
Price trends from the previous halving cycle could be history
Many investment models are built on models of how assets tend to behave over time. And ideally, this should make the April halving an indicator of how the price of bitcoin should be expected to move, but it is about to diverge from its price history trends.
Bitcoin has risen to a new all-time high within about a year and a half of each of the three previous halvings, never immediately before the event. For example, the first halving occurred in November 2012, when bitcoin was trading at around $13, its price rose to a record high of over $1,100 by November 2013.
The year after its second halving in July 2016, bitcoin hit another all-time high, surpassing $19,000, while its most recent halving in May 2020 occurred about 18 months before yesterday’s record high of $69,000.
Therefore, past performance is certainly not indicative of future returns.
The Fed May Dismantle the Bitcoin Party, Yes, That Fed
While bitcoin has been considered separate from stock markets, it is still vulnerable to certain macroeconomic signals, particularly those coming from the U.S. Federal Reserve.
Researchers at Grayscale called the Fed’s monetary policy stance “the primary risk to digital asset valuations” in a commentary last week, citing stubborn inflation and a delay in rate cuts that could prove negative for cryptocurrency prices.
“Lower real interest rates and rising government debt could both weigh on the value of the dollar and support competing assets, including Bitcoin,” another Grayscale commentary noted yesterday.
It’s not altcoin season yet
Typically, bitcoin’s rise lifts other cryptocurrencies. Given the cryptocurrency narrative’s focus on bitcoin right now, it’s unclear whether a so-called “altseason” will occur again, especially considering the development of various Bitcoin Layer-2 projects which intend to bring to Bitcoin many of the types of applications present on other cryptographic networks.
Ether (ETHUSD), the second largest cryptocurrency by market cap, has surged to over $3,800 on the back of the hype surrounding bitcoin and the potential approval of a Ether Spot ETF but it is nowhere near the high of over $4,800 reached in 2021.