Has Bitcoin Bottomed Out Yet?

The premier cryptocurrency is back below $70K in early trading on Tuesday after bouncing off $60K last week, opening the question of whether the rebound can be sustained or if it will resume its months-long slide.

The Latest Developments

• BTC's recovery this week has failed to break $70 and trades below its average production cost of $87K per coin.
• Asset holders have been affected by the latest slump in bitcoin prices, with Strategy posting an accounting loss of $12.4 billion.
• Analysts are unsure whether there is still more downside, as historic performance is compared with uncertainty amid the impact of US monetary policy on Bitcoin's recent performance.

Is the BTC Bottom In?

Bitcoin has been declining for four months and has lost 23% of its value over the past 30 days. Crucially, it fell below the $87K level, around the average mining cost, putting pressure on miners. As mining becomes unprofitable, supply could be reduced, which is one argument supporting the possibility that Bitcoin is near its bottom. Last week's excursion down to $60K was rapid, followed by a quick recovery, and came amid significant market volatility as precious metal prices fell and a big tech selloff occurred. Many analysts believe that cryptocurrencies are vulnerable to market trends, as they are speculative assets that traders are more likely to sell to raise cash to shore up other investments during a market downturn. In that case, the future of Bitcoin could depend on whether US equities manage a rebound. Early Tuesday, indicators are suggesting the rotation out of tech continues, with the Nasdaq underwater while the DJIA heads for new highs. The market's risk-off stance could hinder a short-term crypto rebound.

One of the firms caught up in the volatility is Strategy, which reported earnings last week. Its share price whipsawed down 17.1% on Thursday and then back up 26.1% on Friday. The decline in Bitcoin prices has challenged CEO Michael Saylor's push to turn the company into a crypto holder, as it reported a $12.4 billion accounting loss last quarter due to the change in BTC's value. The company also reported holding 713.502 bitcoins at the start of the month, purchased at an average cost of $76,052 per coin. Analysts pointed to Strategy's $2.5 billion in cash holdings, which would allow it to weather a crypto price downturn and continue paying dividends. That could explain the company's rebound along with the crypto market.

Could Bitcoin Rebound Continue?

Some analysts suggest that last Thursday's "flash crash" with Bitcoin, briefly falling to $60K, was the result of an unlikely combination of events, but it doesn't alter fundamentals. Markets were surprised when US President Donald Trump announced the notoriously hawkish Kevin Warsh as his pick to replace Fed Chair Jerome Powell in May. Since then, Warsh hasn't expressed public views on monetary policy, but Trump touted his dovish credentials in a Monday interview, suggesting he would continue to push for lower rates, which would likely help gold and cryptocurrencies. On the other hand, some analysts point to historical pullbacks, in which Bitcoin has declined significantly more during prior downturns. In 2022, it dropped 77%, and in 2018, it fell by 84%. With Bitcoin down just 44% from its most recent all-time high, that implies further downside. The upcoming US data could be crucial for determining market sentiment and the evolution of cryptocurrencies.

BTC Recoils, But Bulls Have Long to Go

BTC’s plunge has triggered long positions at the lower VWAP near $67k, however, both the upper and middle VWAP lines are still pointing down. If the descent continues, BTC bears would initially have to reclaim the regional support at $60k, followed by the August 2024 bottom at $50k. With RSI oversold on the weekly chart, but not at the historical low of 23 seen back in June 2022, the penetration of the prior record high in 2024 suggests Bitcoin could go either way. As BTC recoils, the $75k resistance, the swing low of $81k and the middle VWAP might act as resistance levels towards triple digits. On the flip side, short-term support under the $60k barrier sits at $53,800, with a breakdown below the $50k barrier leaving the door wide open to $32,500.

Source: SpreadEx | Bitcoin, Weekly Chart