While the short-term outlook for the price of bitcoin has improved after a brutal slump, the cryptocurrency faces headwinds from government sources heading into the new year.
Down from a record high of $20,000 on 17 December, the currency plunged 83.5% a year later.
However, oversold conditions have given way to a recovery.
The five-day chart makes for much nicer reading compared to the three-month chart:
What sent bitcoin down recently?
There are a number of theories that are bandied about as to why the most recent crash happened.
Some commentators point to the Bitcoin Cash (BCH) hard fork as the chief culprit.
BCH is currently the seventh largest cryptocurrency by market cap, and the differences that triggered the hard fork can be traced to divisions in the BCH community and corresponding attachments to two personalities,
As we covered earlier in Money Morning, these comments came one day before the BCH hard fork.
Here’s where the two events fall on the chart:
So you had two reasons to be bearish on BTC in both the long-term and the short-term.
They hit in quick succession.
Just for reference, Lagarde said:
‘I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy…this setup would be good for users, bad for criminals, and better for the state, relative to cash. Of course, challenges remain. My goal, at this point, is to encourage exploration.’
BTC bounces back
Call it what you will, a bounce, a ‘bullish reverse candle’ or just a promising sign.
BTC has clawed back its sharp losses, and at time of writing is trading at $3654.09, up 3.97% so far today.
This is important for the BTC community as it restores a modicum of profitability to the process of mining, which has fallen dangerously low.
As per JP Morgan via Business Insider:
‘Prices have declined to a point where mining is becoming uneconomical for some miners, who have responded by turning their mining rigs off. What had been striking with the Bitcoin hash rate was that it peaked only recently at the end of October i.e. much later than the peak in Bitcoin prices at the end of 2017. Combined with price declines, the surge in the mining activity in the first ten months of the year, partly driven by chip manufacturers deploying miners to test their products and partly by miners adopting more efficient operations, created a collapse in mining profitability from $4/Day for 1THash/s at the end of 2017 to $0.16 currently.’
What does the future hold for BTC?
Recent headlines tying BTC to bomb-threat emails certainly didn’t help, but after this recent storm, BTC may continue its upwards trend in the short-term.
Positive factors for the cryptocurrency include increased uptake in the developing world, a (potentially) vocal bitcoin support in the White House (new Office of Management and Budget Director Mick Mulvaney) and strong growth in crypto ATMs.
Future long-term headwinds include the prospect of China developing its own digital currency along with the general trend of increased government intervention in the cryptocurrency sphere.
Basically, it’s a mixed bag when it comes to short-term and long-term outlook. Over the next few days traders will be looking to see if the trend of the past few days materialises into a stronger bullish movement.
For Money Morning