Bitcoin (BTC) experienced a significant drop, reaching as low as $56,700 on Thursday. This price level has not been seen since May 1st, as Bitcoin faces several challenges, including US political uncertainties and the ongoing sell-off of BTC seized by the German government. These factors have contributed to a nearly 20% price correction for Bitcoin, causing concern among investors.
Unraveling The Bitcoin Price Drop
According to a recent Bloomberg report, investors are contemplating potential scenarios if President Joe Biden decides to withdraw his US reelection bid. One possibility is the emergence of a stronger Democratic contender who may pose challenges to Republican Donald Trump, whose agenda favors the crypto industry.
Richard Galvin, co-founder of hedge fund Digital Asset Capital Management, highlights the likelihood of a “stronger Democratic candidate” who might not support cryptocurrencies as a factor influencing Bitcoin’s weakness in the short term.
In addition, the overhang from the collapsed Mt. Gox Bitcoin exchange case, which plans to begin refunding, affected customers of the alleged hack suffered nearly 10 years ago, and the US and German government sell-off are contributing to the current weakness in the Bitcoin market.
Traders are closely monitoring the risk of Bitcoin disposals by both the US and German governments, who possess seized BTC. Recent data from Arkham Intelligence reveals that a wallet associated with the German state transferred approximately $75 million worth of BTC to exchanges on Thursday, adding to a series of similar transfers.
Meanwhile, administrators of the failed Mt. Gox exchange are gradually returning a substantial amount of Bitcoin to creditors, leaving speculators uncertain about the potential impact of the $8 billion haul on the market.
Miners’ Response And Market Impact
On the other hand, Bitcoin miners responsible for the computational power that supports the Bitcoin blockchain continue to face the financial consequences of the Halving event, which reduces the number of new tokens they receive as a reward.
As a response, some miners are selling a portion of their token inventory, adding to the selling pressure on Bitcoin. This ongoing battle with selling pressure from miners is affecting Bitcoin’s price performance, as highlighted by Noelle Acheson, author of the Crypto Is Macro Now newsletter.
However, Acheson notes that the sentiment in the crypto market can quickly change, especially if weaker US economic data instigates expectations of looser monetary policies from the Federal Reserve.
Additionally, the potential approval of US exchange-traded funds (ETFs) to invest in Ethereum could uplift the overall market mood. Furthermore, the interpretation of US political developments may shift over time.
Matt Hougan, Chief Investment Officer at Bitwise, suggests that potential changes at the top of the Democratic ticket will likely settle in an improved position for cryptocurrencies. He emphasizes that Washington’s attitude towards digital assets has changed positively in the past year.
Glassnode Predicts Retest Of Previous All-Time Highs
Despite the negative price performance and uncertainty surrounding BTC’s price, Jan Happel and Yan Allemann, founders of blockchain analytics platform Glassnode, maintain their target for Bitcoin, stating that BTC is expected to reach the $110,000 area before the market peak.
Notably, Allemann and Happel see the current consolidation as a retest of the previous all-time high area. However, for this to happen, Bitcoin will need to cross key levels at $64,000 and later $70,000, which will require further market development and price action.
According to Julio Moreno, the Metcalfe Price Valuation offers insights into the potential support level for Bitcoin’s price. Moreno suggests that $56,000 should be a crucial support level for Bitcoin based on this valuation.
Moreno concluded that if the Bitcoin price fails to hold this key $56,000 level, the correction could potentially deepen, leading to more severe consequences for the market.
BTC has regained the $57,300 level; however, the cryptocurrency has been down 5% in the past 24 hours, with no signs of near-term bullish catalysts to climb above $60,000.
Featured image from DALL-E, chart from TradingView.com
