Bitcoin’s Weekend Slide Is Generating Considerable Investor Attention

Bitcoin tumbled this past weekend, revealing growing concern among investors including Wall Street traders that the cryptocurrency might be more volatile than initially anticipated.  The rapid decline in Bitcoin value occurred shortly after the close of traditional stock trading hours.  Such an abrupt drop is particularly concerning for Wall Street veterans who are used to confidently packing up for an enjoyable weekend following a week of trading traditional securities.

A Closer Look at the Bitcoin Drop

All in all, $2.5 billion of Bitcoin bets soured this past weekend.  It was the first large-scale liquidation of the crypto since this past September.  Selling pressure from those who invest on an institutional level and those who are professional investors as opposed to retail investors spurred the clearing of the bets on the popular cryptocurrency.  Those bets were made on exchanges including Binance.

Those who magnified their crypto bets through borrowing are usually completely wiped out when trading in the context of crypto future exchanges.  The “wipe out” occurs when the digital token’s price hits a specific threshold, referred to as its liquidation price.  The sudden decline eliminated a whopping $5 billion of Bitcoin positions in conventional futures markets that empower investors to essentially wager on the values of cryptocurrencies including Bitcoins.  The massive decline decreased the outstanding bets by nearly 35%.  

Bitcoin prices have jumped an impressive 500% in the prior two years, attracting money from retail investors as well as professional investors who assumed the cryptocurrency’s return would not correlate with other assets.  However, larger investors including hedge funds have entered the fray, causing cryptocurrency ties to previously unrelated markets to tighten that much more.  

Investors are Exiting Positions Prior to the Year’s Close

Part of Bitcoin’s decline is the investor desire to transfer paper gains into actual returns prior to the end of the trading year.  It is no secret that investors get nervous as the year winds to a close.  Economic activity tends to decline in the winter months.  Add in the fact that the coronavirus is stronger than ever as a result of the Omicron variant along with disappointing jobs data and the perfect storm formed to take a chunk out of Bitcoin’s value.  

It is also worth noting that Jay Powell, the chair of the Federal Reserve, has stated he anticipates a hike in interest rates.  Climbing interest rates gives investors even more reason to panic and take money out of Bitcoin as well as other value stores, shifting it to cash, money market accounts, CDs and other comparably safe investments.

Bitcoin Appears to Have set a Floor at $47,000

Take a close look at Bitcoin’s six-month chart and you will find it has selling resistance around the $47,000 level.  It appears as though investors and crypto enthusiasts are swooping in when Bitcoin dips below $50,000.  Though there is no guarantee Bitcoin will remain at the $50,000 level or higher, its charts indicate it is likely to hover around this benchmark if another selloff were to occur.  Time will tell if this weekend’s selloff revealed new Bitcoin vulnerabilities.