Will bitcoin fall to $ 20,000?

Bitcoin has hit its lowest level since last summer and the price may fall further.

The cryptocurrency market is under stress. Bitcoin has hovered around $ 40,000 for several months, although it has also experienced sharp price fluctuations up and down, peaking at $ 69,000 in November last year. Today, the cryptocurrency hit its lowest level since July 2021, around $ 32,000 on Monday around noon. How do you explain such a fall?

To understand what is happening now, go back to the start of the war in Ukraine on February 24, bitcoin had held up quite well despite its high risk, making it almost a “miracle” for Vincent Ganne, technical analyst financial markets. This scenario was only short-lived, with bitcoin not becoming a safe haven and eventually moving in line with the stock market.

For in recent months, we have observed an increasingly strong connection between bitcoin and Nasdaq. While the cryptocurrency market (bitcoin and other cryptocurrencies combined) is much smaller – with a current capitalization of $ 1.5 trillion – than the Nasdaq, a decline in the US technology index is felt more markedly in this market. If the correlation between bitcoin and Nasdaq paradoxically was not observed in the first days of the war in Ukraine (at 0.20, see below the graph), it has resumed in intensity since the beginning of March.

“This was done very gradually: there is a withdrawal from the cryptocurrency market, the volume of transactions is very low, there is uncertainty about political regulation in Europe, and we are dealing with capital liquidity that leaves risky asset classes,” emphasizes Vincent Ganne.

The linear correlation coefficient between bitcoin and Nasdaq remains strong today and reaches 0.77. In other words, as stock markets rise, the price of bitcoin tends to rise. Conversely, when they dive, the cryptocurrency is turned off. Since the beginning of the year, bitcoin has also fallen 31%. This is a decline fairly close to the Nasdaq index during the period (around -24%).

Bitcoin and Nasdaq correlation per.  May 9, 2022, TradingView.com
Bitcoin and Nasdaq correlation per. May 9, 2022, TradingView.com © TradingView

It must be said that the context is particularly gloomy. Global economic downturn, inflation out of control in many countries, rising interest rates, rapid tightening of monetary policy in the US or even China’s difficulties in dealing with the Covid waves … A combination of elements that made stock markets plunge, leading to others risky assets, including bitcoin. The crypto star had not experienced such a decline since last summer, when the Chinese state decided to shut down mining in the country.

A “falling knife” effect

According to Vincent Ganne, it is possible that the cryptocurrency market is experiencing a scenario with a “falling knife” effect, according to the stock market proverb that “you can not catch a falling knife”. In other words, investors are advised to wait to be sure that the decline is over before repositioning themselves on an asset.

We have not experienced this despite the war, but if the $ 30,000 / $ 33,000 zone for bitcoin is broken, we will go into this “falling knife effect”, against $ 20,000. It is the price of long-term purchases that 90% of traders expect: which means that in the event of a dropout, I do not think we will fall below 20,000 ”, explains Vincent Ganne.

Prices of the most important cryptocurrencies for the last 3 months, analysis by Vincent Ganne on TradingView.com.
Prices of the most important cryptocurrencies for the last 3 months, analysis by Vincent Ganne on TradingView.com. © TradingView.com

If we focus on the 20 largest cryptocurrencies in terms of capitalization according to the website for Coinmarketcap, i.e. with a cumulative value of more than $ 7 billion, we note that they have all fallen over the last 3 months, such as bitcoin (-25.70%) or even ether (-24, 06%). The only exception: cryptocurrency luna, an increase of 4.46% over the last three months, although cryptocurrency has been on a downward trend for a month. The trend is the same in the last 7 days, the 20 largest cryptocurrencies are falling apart from the tron ​​cryptocurrency (+ 12%).

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