A representations of virtual currency Bitcoin is seen in front of a stock graph in this illustration taken May 19, 2021.
Dado Ruvic | Reuters
The cryptocurrency market had around $130 billion wiped off its value over the last 24 hours as major digital coins continued their multi-day sell-off.
The movements in cryptocurrencies follow those of stocks, which have continued to fall since the beginning of the year and just came off of their worst week since March 2020. Investors have been selling risk assets like technology stocks as they prepare for tighter monetary policy from the U.S. Federal Reserve and higher interest rates.
“Bitcoin and crypto have been reacting much more violently, given the nature of the asset class and we’re likely to test 30-32K given current sentiment and momentum,” Vijay Ayyar, vice president of corporate development and international expansion, told CNBC by written message.
Ayyar said that if bitcoin holds above $30,000 on a longer time frame such as one week, then there could be a base formed at those levels before the market moves higher. It could be some time for the market to turn bullish given the lack of confidence across the spectrum, he added.
Other analysts see $30,000 as the next level of support for the cryptocurrency to test. However, analyst John Roque of 22V Research said bitcoin could fall even further. He said he too has been using $30,000 as a target but noted that the median historical bear market for bitcoin is down 78%. Bitcoin is currently about 50% off of its all-time high.
“It’s a decent idea to understand what such a down move would mean this time,” he said. “A 78% decline from the bitcoin high of nearly $69,000 would imply a potential downside figure of about $15,000. It’s probably safe to say that not one bitcoin bull has that figure in their model. To be sure, we don’t either… but we think it’s worth keeping in our back pocket in case we need it.”
Investors are also grappling with higher inflation. Bitcoin proponents often suggest the digital coin is a hedge against inflation, but that theory has not held up so far. Analysts said there is a concern a more hawkish Fed could take the wind out of the crypto market’s sails.
Meanwhile, investors are also assessing the impact of further regulation on the cryptocurrency market. Last week, Russia’s central bank proposed banning the use and mining of cryptocurrencies.