Bitcoin Retreats Below $40K Under Pressure From Traditional Markets
FxPro Financial Services Ltd | Jun 17, 2021 10:39AM ET
Cryptocurrencies switched to extra caution mode, following the traditional financial market. Bitcoin has fallen more than 3% and is changing hands for $39,100. Thus, the price of the first cryptocurrency returned under the $40K mark, an important round level. The good news is that the decline has stopped, and early in the day, there were signs that support for the coin was emerging from buyers.
The bad news is that the support factors appear to have already been played out. Obviously, news factors provide significant support for the cryptocurrency, but a truly strong dynamic only begins when it comes to actual investing. As we can see, El Salvador's willingness to put Bitcoin on par with the dollar has only led to short-term and unsustainable growth.
The likelihood of the practical implementation of Bitcoin in El Salvador is questioned by experts, as 70% of the country's citizens do not even have access to bank accounts. At the same time, the ability to officially exchange Bitcoins for dollars can lead to a wave of holders of the asset from China and Russia simply absorbing the dollar liquidity of the country.
The current decline is since the market has accumulated quite a lot of investors who take their profits at the first signs of growth, estimating that the main wave of growth is already behind us. Large holders and the retail sector investors are taking their profit, which can be seen in the synchronous decrease of alternative cryptocurrencies and growth of the Bitcoin dominance index, which already reached 45%. Overall, this is a rather alarming sign, as it often precedes a broad trend reversal.
The correlation of cryptocurrencies with the traditional market may intensify soon. While the Fed refuses to raise rates and roll back its aggressive stimulus program for the foreseeable future, officials acknowledge that they are ready to begin discussing these measures soon. In the event of a hypothetical sell-off in the stock market, Bitcoin risks following the general wave, unable to withstand the sell-off by institutional investors. The retail sector would simply not be able to withstand such pressure, no matter how favourable entry points to buy Bitcoin might be.
Among the near-term negative factors is the decline in hash rate amid the great Chinese migration of miners. However, the fact that they may move to Texas, which offers cheap electricity and is known for its leaders' positive attitude toward cryptocurrencies, could create an interesting rebalancing in the market. Right now, the US is setting the regulatory and technological tone for the entire market. If the country also hosts mining facilities, it will be an additional factor in favour of the development of the crypto sector and will be welcomed by large investors.
Get The News You Want
The FxPro Analyst Team
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.