Cryptocurrencies are crashing – so how low will bitcoin go?

The entire cryptocurrency sector is crashing, with bitcoin now well below $30,000. This is big, says Dominic Frisby. So just how low could bitcoin go?

With bitcoin crashing – in fact, the entire cryptocurrency sector crashing – I thought I should quickly cover it today.

Needless to say, it’s not pretty. 

At all.

Faith in cryptocurrencies has been battered – in most cases, quite rightly

This time last year, bitcoin went on one its monster runs above $60,000. It then had one of its monster crashes. 

I can’t remember if it was on these pages or on Twitter, but somewhere I suggested that a reasonable target for the correction might be $20,000. 

$20,000 was the old high from the 2017 boom and bust and an obvious pivotal price point.

But the correction stopped at $30,000, or just below. 

The conclusion I drew – and on current evidence wrongly drew – was that, as bitcoin matured, its volatility was declining. The 90% corrections of previous bull markets were now 50%-60% corrections.

Bitcoin had a second run above $60,000 in the autumn, followed by another of its humongous corrections, and lo and behold, $30,000 held again (actually just below, but I use round numbers as they are more readable).

As an asset, bitcoin has become highly correlated to the Nasdaq and tech stocks and, as we all know, tech stocks have been walloped. Peloton, for example, which we wrote about yesterday, is down over 90%.

So over the past fortnight, I was quite encouraged to see bitcoin holding up quite well relative to other tech stocks. $30,000 looked like it was a floor.

Then we got the collapse in the protocol Terra, and its so-called stablecoin UST, which John covered earlier in the week, and the sector has been absolutely battered.

This is big, and it’s going to take some recovering from. The bubble of 2016 was verging-on the-fraudulent ICOs. Today it’s staking and stable coins. The yields on staking – over 20% in some cases – were unsustainable and so they have not been sustained. (If you’re baffled as to what I’m talking about here, don’t worry, you haven’t missed out and at this stage it’s very much for the best). 

Hundreds of thousands of people have lost money, in some cases fortunes, and the reputational damage to crypto is considerable. All those who declared that “crypto is a fraud” are now looking wise, while those, myself to an extent included, who made the argument that bitcoin is a hedge against currency debasement are looking stupid, given that it is off some 65% from its highs.

Bitcoin will survive (again) but it’s likely to hit $20,000 and could go even lower

Of course, bitcoin and cryptocurrencies are not one and the same. Bitcoin remains a product of technical and open-source genius, but forever in its wake, and surrounding it, are disasters, gaffes, frauds and scams. 

Altcoins, NFTs, the Metaverse, Defi, staking, whatever the latest buzz thing is – all of it is puking value, and the bubble has well and truly burst. Again.

And there lies the keyword – again. This is not the first time this has happened, and it will not be the last. And, for all the junk that surrounds it, bitcoin keeps plodding on.

As I write it sits at $27,500. I can’t see how it doesn’t retest $20,000 in the coming days.

We hope $20,000 holds, but these are horrible, horrible, horrible markets – and I’m not just talking about crypto. It was oil going bananas in 2008, rising to $150 a barrel, which triggered that collapse. It seems like something not too dissimilar is happening now, following oil’s spike to $130 last month.

There will be a lot of forced sellers out there – leveraged players (those using borrowed money) and so on. So we are going to see a lot of liquidation. My advice, if you own quality assets, and you don’t have to sell, is not to. 

Gold, bitcoin, good companies – whatever. Their price may go lower, but if you are not confident you can beat the market, then don’t sell. Because just as bubbles always burst, so does quality always come good. And bitcoin itself – I’m not talking about other cryptocurrencies – bitcoin itself is a quality asset.

There’s even a chance it could go back to its corona-panic lows of March 2020. Heck, everything else seems to be going that way. That would take us to $3,000. I would have thought that unlikely, but never say never, especially in these markets.

If you think you can beat the market, as I say, go for it. 

If not, HODL quality. Don’t trade it.

Dominic’s film, Adam Smith: Father of the Fringe, about the unlikely influence of the father of economics on the greatest arts festival in the world is now available to watch on YouTube.

Recommended

Despite the crypto crash, bitcoin still has a bright future
Bitcoin & crypto

Despite the crypto crash, bitcoin still has a bright future

Cryptocurrencies have crashed hard, with bitcoin down by more than 50% from its peak. But, says Dominic Frisby, bitcoin still has a future – it is the…
19 May 2022
Do Kwon: the King of Crypto Lunatics
People

Do Kwon: the King of Crypto Lunatics

Cryptocurrency entrepreneur Do Kwon liked to ruffle feathers and stir things up in his industry. But the collapse of his empire has left investors des…
19 May 2022
Tech stock crash – dotcom bust 2.0 is upon us
Tech stocks

Tech stock crash – dotcom bust 2.0 is upon us

It’s carnage in the tech sector as the market crashes. But that spells opportunity for canny investors, says Matthew Lynn
19 May 2022
Three things you should learn from Bill Ackman's brilliant Netflix trade
Investment strategy

Three things you should learn from Bill Ackman's brilliant Netflix trade

Hedge fund guru Bill Ackman has lost $400m selling Netflix shares. John Stepek explains why this was a brilliant trade, and outlines three things that…
19 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022