How much further will bitcoin fall?

Bitcoin has crashed hard, along with the wider cryptocurrency sector. Everything is looking awful, says Dominic Frisby. Here, he asks just how low bitcoin could fall.

Like Brexit, Trump, what a woman is, the BBC or vaccines, bitcoin has proved itself one of the battlegrounds in the culture war.  

Some people like it a lot. “Bitcoin fixes this” is the slogan, and bitcoin is thought to be the answer to any number of societal problems – from unaffordable housing to government overreach and the financial inclusion of the unbanked, the world’s poorest. 

There are many, however, who take the other view: it’s only used by drug dealers and money-launderers, it’s a Ponzi scheme, it can’t scale and it’s destroying the environment. 

The latter have been rather noisy of late. The reason?  

Bitcoin’s crashed. Again.

Bitcoin has had a painful crash – but this isn’t that unusual 

Let’s start with the price. What was $67,500 back in November is now $21,000. It touched $20,000 on Monday. I make that a 70% haircut. Not good. 

But not so abnormal either.  

Bitcoin has had at least six corrections of 80% in its 13-year life – I make that one almost every two years. And yet, on broader time horizons, the network continues to grow, the number of users increases and the price appreciates.  

That kind of volatility is hard to stomach (particularly if you have a large portion of your net worth tied up in it, or, worse, on leverage) and it makes it harder to press the case for bitcoin to become some kind of default money system.  

But it is what it is: a new technology whose purpose is to be money. It’s about as speculative a boom-bust vehicle as you could ever hope to design. 

As I see it, there have been two factors driving the price action. 

First, we are in the midst of one of the most vicious bear markets in my memory. Just about every asset there is is being battered. (Will oil be the next to go? I am starting to wonder.) 

We are talking about deleveraging across the board and, in such a macro environment, there is little time for speculative growth plays like bitcoin, the future of money or not. Panic is acute. There is a rush for cash.  

Never mind that, after you account for inflation, it’s losing 10% per annum. For now cash is king – specifically the US dollar, which is breaking out of its range to 19-year highs. 

I’m worried this goes to 120, by the way.  

Bitcoin price chart

If it does (as we have been warning for some time), never mind bitcoin, all assets are in even deeper trouble, be they stocks, commodities or other national currencies. We might even need another Plaza Accord

But of all the sectors to have been walloped by this bear market, tech, the darling of the preceding bull market, has been hit hardest. Bitcoin may not be a Nasdaq stock, but it trades as though it is, and the Nasdaq has been hit hard. 

The wider cryptocurrency sector is in panic mode   

The second catalyst to drive crypto prices lower comes from within the sector itself. We wrote a few weeks ago about the collapse of stablecoin luna and suggested bitcoin would go to $20,000 then with the sudden rush for liquidity. But it didn’t; it held up.  

The latest scandal to dog crypto – which has a knock on from terra and luna – is around celsius. And that has driven it to $20,000. 

Celsius is one of those lending platforms which paid what seemed like extraordinary rates of interest if you stake your crypto coins with them. They would then lend those coins out. Sort of like banking, really, but with cooler buzzwords. It paid 7% for bitcoin, I gather, and up to 18% for others.  

If it sounds too good to be true, it probably isn’t true. 

With falling crypto prices this year, many have been withdrawing their cryptocurrency, creating for celsius a liquidity crisis of its own. The collapse in value of its terra holdings has only made things worse, while it borrowed ether from customers and staked it in such a way that it is now tied up and can’t sell. 

It’s a clusterflip. But it then emerged that it had sent over $300m in coins to exchange FTX. It looked like a rug pull. Cue a market panic, as everyone tried to get their coins back, and in many cases, sell what they have. Before long, Binance, the world’s biggest exchange, also halted withdrawals (only for a period though). 

Reading this I imagine most neutrals would not want to get involved in this space at all. Well, fair enough.  

I remain of the mind that bitcoin is an extraordinary technological breakthrough and I want to keep my shares in what is the most powerful computer network ever built. Others won’t feel the same way – and perspectives get messed with in bull and bear markets. We are at one of those points where everything looks awful. 

How much further will bitcoin fall from here? 

I’ve suggested before several times that bitcoin might come back to $20,000. That was its level in 2017 at the end of that particular episode (before it then went back to $3,000). It’s  an obvious pivotal price point.  

The next question to ask ourselves is: will $20,000 hold? 

Well, if this bear market in everything carries on for much longer, the short answer is, “no”. Everything will be going lower.  

Here’s a chart with a dashed line at the $20,000 mark.  

Let’s hope what was resistance now becomes support. It often does. 

Bitcoin chart

If not, the next line in the sand is $12,000. 

A speculator might look at that and think, I’ll buy bitcoin at $21,000, with a stop at $18k or $19k. Pretty good odds?  

But such chutzpah is hard to find in a bear market after a decline like this. As is the necessary cash. 

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.


Britain’s most-bought shares w/e 24 June
Stocks and shares

Britain’s most-bought shares w/e 24 June

A look at Britain’s most-bought shares in the week ending 24 June, providing an insight into how investors are thinking and where opportunities may li…
27 Jun 2022
Prepare your portfolio for recession
Investment strategy

Prepare your portfolio for recession

A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, sa…
27 Jun 2022
Carnival faces a long road to recovery – avoid for now
Share tips

Carnival faces a long road to recovery – avoid for now

Cruise operator Carnival suffered heavily during the pandemic, losing 90% of its market value and burning through $7bn in cash. Sales are back on the …
27 Jun 2022
Market crash: have we hit bottom or is there worse to come?

Market crash: have we hit bottom or is there worse to come?

For a little while, markets looked like they were about to embark on a full-on crash. And that could still happen, says Dominic Frisby. Today, he look…
27 Jun 2022

Most Popular

The ten investment trusts with the highest dividend yields
Investment trusts

The ten investment trusts with the highest dividend yields

Investment trusts are one of the best ways to participate in the stockmarket, and the way they are structured means they can maintain their dividends …
23 Jun 2022
Governments will sink in a world drowning in debt
Global Economy

Governments will sink in a world drowning in debt

Rising interest rates and soaring inflation will leave many governments with unsustainable debts. Get set for a wave of sovereign defaults, says Jonat…
23 Jun 2022
Why a recession will do us good
UK Economy

Why a recession will do us good

A period of slimming down is always painful, but it leaves us healthier for the long run, says Matthew Lynn.
26 Jun 2022