How Low Can Bitcoin Go?

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Crypto markets have had a tough year, marked by brutal sell-offs.

The value of the global cryptocurrency market has fallen from a peak of more than $2.9 trillion in November 2021 to around $1 trillion today.

Bitcoin remains the world’s largest and most popular crypto, with a market capitalization of $433 billion. But it has not been immune to market weakness.

After peaking at a new all-time high of $68,789 in November 2021, the price of Bitcoin dropped as low as $17,708 in June 2022. Since that time, Bitcoin prices have rebounded to above $22,600.

Bitcoin bulls are hopeful fears over destabilization of stablecoins and contagion in the crypto lending market, but some analysts say Bitcoin still has room for downside before the year’s end.

What Is the ‘True’ Bitcoin Bottom?

Bitcoin prices are down more than 67% from their 2021 highs.

Sell-offs this severe are nothing new in the crypto market. The crypto experienced a roughly 80% crash from 2017 highs in 2018 only to surge to new all-time highs again in 2020.

Still, several key differences exist between the 2018 Bitcoin sell-off and 2022’s crypto winter. The 2018 sell-off was driven largely by panic selling and margin calls on retail investors’ positions.

The 2022 sell-off has been exacerbated by concerns about contagion threatening the stability of the entire crypto market. Crypto lending firms Voyager Digital and Celsius Network were all recently forced into bankruptcy after facing severe liquidity crises.

In addition, investors lost confidence in the stablecoin market in recent months following the collapse of TerraUSD (UST) in May.

Bitcoin Value: BTC Is Hard to Value

Bitcoin does not generate cash flow, revenue or earnings, and it’s not backed by any assets holding intrinsic value. So it can be difficult for analysts and other experts to assign an appropriate value or price target for the crypto.

Bitcoin bulls argue that like gold, Bitcoin’s value is tied to its scarcity, as the crypto holds a fixed cap of 21 million total coins.

A fixed supply and no intrinsic value means Bitcoin prices are determined purely by market demand, making crypto market investor sentiment the most important element in predicting where Bitcoin prices are headed.

Some analysts rely on technical analysis of Bitcoin’s price chart to determine important near-term support and resistance levels, including a potential price level for the Bitcoin bottom.

What Is Bitcoin’s Breakout Price?

Julius de Kempenaer, senior technical analyst at StockCharts.com, says the Bitcoin chart suggests a breakout price above $22,500 could carry Bitcoin to its next resistance level of around $27,500. Still, upside beyond that point may be difficult.

“The long-term trend for BTC is still down after breaking support around $30,000, which at the same time marked the completion of a big top formation,” de Kempenaer says.

He also says he’s not convinced the Bitcoin bottom is in just yet, given the selling pressure in Bitcoin seems to be strong, and “ease of movement” is the downside for now.

“Will that [$17,500] mark the low for BTC? I am not so sure,” he says. “I am watching [$12,500] as a potential long-term target.”

Does Inflation Spell Trouble for Crypto?

Another key difference between the 2018 Bitcoin sell-off and the 2022 crypto winter is the macroeconomic environment.

In 2022, the Federal Reserve has aggressively raised interest rates to combat the highest U.S. inflation numbers in decades.

Bitcoin prices could easily fall to new lows if the macroeconomic environment deteriorates further, experts say.

While bearish news is already baked into Bitcoin’s price, other drops might be possibilities, especially if inflation climbs faster than expectations.

Inflation has been a key component of the crypto winter of 2022, and investors tend to dump higher-risk assets when the Fed raises interest rates to address inflation. The correlation between Bitcoin prices and the S&P 500 has also been extremely high this year.

Daniel Rodriguez, an accredited investment fiduciary and chief operating officer at Hill Wealth Strategies, says Bitcoin prices have the potential to fall even lower.

“Every time the interest rates go up or the Fed announces plans to increase rates, Bitcoin takes a sharp dive almost instantly,” Rodriguez says.

Anthony Rousseau, senior director of product strategy at TradeStation Crypto, says the 2022 Bitcoin bottom will be tied closely to the Fed’s policies.

“If the Fed continues with their published plan, I feel it’s likely to see continued U.S. dollar strength and bearish pressure on risk assets like Bitcoin,” Rousseau says.

According to CME Group’s FedWatch Tool, the bond market is currently pricing in a greater than 66% chance the Fed will raise interest rates by at least another 2% by the end of the year.

Risk Tolerance in Bitcoin Investing

Bitcoin may have taken a beating so far in 2022, but the crypto remains one of the best long-term investments in the market in recent years.

Bitcoin prices are still up more than 110% over the past three years and a whopping 740% over the past five years.

Critics of Bitcoin’s potential to serve as an actual currency have long pointed out its shortcomings as a stable store of value.

While it may seem like Bitcoin’s 52% year-to-date decline is extreme, volatility is fairly typical for Bitcoin. The original crypto hasn’t completed a calendar year without an annual gain or loss of at least 60% since 2015.

Bitcoin’s volatility creates extreme risk for investors, especially when using margin.

BTC may appear cheap, trading at around $22,600 today compared with $60,000 just a few months ago. But given the ongoing macroeconomic uncertainty, including persistently elevated inflation and rising interest rates, the crypto winter may still be a long way away from spring.