Bitcoin, the most valuable cryptocurrency, has been experiencing a significant fall in price since mid-May 2021. The original cryptocurrency traded below $30,000 in early July 2021 and has been struggling to move above this point since then. As of August 5th, 2021, Bitcoin was trading at around $38,000. With Bitcoin’s price being volatile, it can be difficult to predict the long-term market trends, especially amid macro uncertainties. This article looks at some of the challenges facing Bitcoin and why it has been struggling to hold above $27,000.
One of the critical factors affecting Bitcoin and the broader cryptocurrency market is regulatory uncertainty. Regulators across the world are grappling with how to handle digital assets and blockchain-based technologies. Some countries, like China, have instituted stricter regulations, leading to a fall in the market’s value. In May 2021, Beijing cracked down on cryptocurrency mining and trading, causing a significant plunge in Bitcoin’s price. As of August 5, 2021, China was still going after cryptocurrency-related services providers, including mining conglomerates, exchanges, and app services. The country’s crackdown creates uncertainty around the future of cryptocurrencies and their ability to gain traction as a mainstream financial asset.
Bitcoin also faces a significant challenge with environmental concerns. The cryptocurrency’s mining process uses a lot of energy, mostly through computer processing power that produces carbon dioxide emissions. With the increased focus on climate change and sustainability, Bitcoin may struggle to gain acceptance as a viable currency. Several countries, including China, have been moving to renewable energy and should eventually embrace cryptocurrencies that use eco-friendly technology.
Competition from other cryptocurrencies
There are a plethora of cryptocurrencies in existence, with new ones being launched almost every day. Some of these newer crypto coins have been gaining traction, eroding Bitcoin’s market dominance. For instance, Ethereum, the second-largest cryptocurrency, has gained popularity over the years, making it a potential alternative to Bitcoin. Other emerging crypto coins in the market include Polkadot, Dogecoin, and Cardano, among others.
Social and geopolitical risks
Social and geopolitical factors also impact cryptocurrency markets. Bitcoin, like other virtual currency assets, is subject to social risk, which includes changes in market sentiment or consumer preferences. This could be greatly influenced by the media, which could spread with high impact through social media platforms. Geopolitical risks include changes in economic, political, or social systems in a country, such as cyber-attacks or hacks that make investors worried about the safety of their assets. Such risks could lead to a market sell-off, which could cause Bitcoin’s value to fall.
Macroeconomic factors, such as inflation and the overall performance of the global economy, also affect cryptocurrency markets. Cryptocurrencies are sometimes sought after as a hedge against fiat currency inflation. However, global inflation has been on the rise in recent months, with some central banks adopting more aggressive monetary policies to combat the economic slowdown caused by the COVID-19 pandemic. This has left many investors uncertain about the future value of cryptocurrencies and the direction of the broader market.
Bitcoin continues to be a highly speculative asset that is subject to several uncertainties. The cryptocurrency has struggled to hold above $27,000, mostly due to a combination of macro uncertainties and regulatory hurdles. Additionally, competition from other emerging cryptocurrencies has left it struggling to maintain its market dominance. Nonetheless, Bitcoin’s popularity as a store of value should enable it to remain relevant in the cryptocurrency market. In the long run, the cryptocurrency may become more eco-friendly, become resistant to cyber-threats, and establish more favorable regulatory frameworks. As such, long-term investors may be better off holding their investments and waiting for market consolidation.
Bitcoin remains in the red as Asian markets opened, with prices down about 3.1% over the past 24 hours. The cryptocurrency had been hovering in a narrow range before dipping below its recent $26,500 support early Wednesday, causing investors to mull over recent macroeconomic uncertainties that have plagued digital assets for over 12 days. Federal Open Market Committee minutes have done little to soothe markets, which are roiled by an ongoing debt ceiling stalemate, inflationary concerns, and regulation woes. Ensuing price drops, according to Edward Moya, senior market analyst for foreign exchange market maker Oanda, see Bitcoin remaining range-bound and consolidating near the lower boundaries of its downward sloping trading range, with the $25,000 level providing strong support.
Bitcoin’s downward pressure may continue to grow should the risk of a U.S. default grow, and if the U.S. central bank continues its monetary tightening. Investors and crypto/blockchain companies are struggling with financing, warns Moya, as few banks will deal in cryptos and are unlikely to offer loans for long-term projects.
Market maker and liquidity provider Flowdesk still sees opportunity in the US despite bearish sentiment across the crypto market, citing the sophistication and size of the US capital markets as a worthwhile propitiation. CEO Guilhem Chaumont says his company can thrive in the US because of its commitment to compliance and regulatory requirements. He reports that his company has just opened a New York office, which it wants to expand. Chaumont argues that crypto and traditional finance’s regulatory frameworks are converging, allowing for a mass of talent to enter the crypto trading industry. Although Chaumont admits that traditionally complex regulation is not ideal, he states that any regulation is better than none. After all, as more regulated assets become involved in crypto trading, the convergence of crypto and traditional finance regulations can only be seen positively.
Meanwhile, hardware wallet provider Ledger has delayed releasing a key recovery feature, citing the scrutiny of the crypto community, while Prometheum Inc. founder and co-CEO Aaron Kaplan discussed the SEC-friendly crypto path the company is taking with the US regulator. Glen Goodman, author of “The Crypto Trader,” shared his markets analysis, with bitcoin on track to post its first losing month of 2023.