According to Bloomberg, Bitcoin recently dipped up to 6%, putting it briefly below the $US40,000 ($55,860) mark ($US39,774 ($55,544)) — the worst start to a year for the cryptocurrency since 2012. That’s over 40% off its peak of nearly $US69,000 ($96,359) just a few months ago in November 2021. As of early Monday afternoon, Bitcoin was hovering at around $US41,320 ($57,703) in value.
A senior financial markets analyst at City Index, Fiona Cincotta, told Bloomberg the cryptocurrency “has had a pretty shocking start to 2022. There’s a lot going on. We know that Bitcoin is volatile but even for Bitcoin, we’re seeing some really big moves.” Jay Hatfield, the CEO of Infrastructure Capital Advisors, offered a bearish prediction that as the Federal Reserve reduces “liquidity injections” intended as a pandemic stimulus, “Bitcoin could end 2022 below $US20,000 ($27,930).” (Bloomberg separately reported that it expects the Fed to raise interest rates at least four times throughout 2022 in an attempt to prevent over-speculation, in addition to the wind-down of its bond purchasing program by March 2022.)
Many cryptocurrency investors see $US40,000 ($55,860) as an important if somewhat arbitrary marker of Bitcoin’s potential price floor. Falling significantly below that amount for a length of time would, to put it simply, freak many Bitcoin holders out.
Coindesk reported on Monday that Bitcoin appears to be approaching a situation called the “death cross,” which is when the 50-day moving average slinks under its 200-day equivalent. Investors often take this as a sign that the short-term momentum behind an investment is slowing, indicating a bull market is about to break. Coindesk noted that the death cross is an unreliable indicator, however, and since October 2019 Bitcoin has encountered it at least three times. In each case, the cryptocurrency’s value rallied quickly after. That situation is known as a bear trap, effectively meaning that anyone hedging on the cryptocurrency falling further in value made a bad bet.
CoinDesk wrote that analysis by Kraken, a cryptocurrency exchange, rather unhelpfully concluded previous Bitcoin death crosses indicated “either a sell-off in the days that followed or a continued macro downtrend that confirmed a bear market.” Forbes cited several analysts as generally agreeing that the situation for Bitcoin will remain ugly in the coming weeks.
Another factor in the crash appeared to be instability in Kazakhstan, where in recent days security forces conducted a brutal crackdown against violent protesters angered at rising energy costs and President Kassym-Jomart Tokayev’s government. Over 160 deaths and 8,000 arrests were reported after troops opened fire with live ammunition in Almaty as Tokayev ordered security forces in a public address to shoot without warning. The attempted stamping down of dissent involved a widespread internet blackout, cutting off mining facilities based in Kazakhstan from the global network. CoinDesk separately reported that around one-fifth of Bitcoin’s global hashrate (the massive amounts of energy-burning processing power that fuels Bitcoin’s blockchain) is based there; mining operations were seriously disrupted from Jan. 5 to 6. Only on Monday were the miners largely back online.
As always, there are clear signs the cryptocurrency faithful remain so, just as they have throughout prior downturns in Bitcoin’s inevitable boom and bust cycle. Having been through numerous crashes before, core Bitcoin fans have learned to remain somewhat languid during downturns, expecting the speculative frenzy to return after a few months. According to Bloomberg, Genesis Global Trading market insights head Noelle Acheson suggested that the plunge was due to short-term investors cashing out. She told the network long-term investors were “buying the dip,” referring to buying the cryptocurrency at what they see as a premium rate.
When in doubt, zoom out.
HODL ✊ pic.twitter.com/bnZ1jwxvwT
— Bitcoin Magazine (@BitcoinMagazine) January 6, 2022
So-called “meme coins,” referring to a class of tokens like Dogecoin whose value is based almost entirely on speculation tied to the news cycle and social media interest, have also crashed. Dogecoin, which peaked at 74 cents ($1.03) in May, sat at around 14 cents ($0.20) early Monday afternoon, while a counterpart called Shiba Inu coin was at a similarly catastrophic loss since its own peak. The outlook wasn’t universally bad for people who sink thousands of dollars into dog-themed joke bets, with Bloomberg reporting another meme coin called Baby Doge had effectively doubled in value since the start of the year (of course, it can and will crash at any time).