Bitcoin set to record price decline in the second quarter

Bitcoin prices are on track for a record decline in the second quarter, weighed down by China’s crackdown, concerns that the US Federal Reserve will begin tapering its stimulus package, and continued demand for downside hedging.

The leading cryptocurrency traded near $ 34,824 at 10:39 UTC at 10:39 UTC on Wednesday, down nearly 41% for the April to June period. The decline sparked a four-quarter winning streak that saw prices soar six-fold to nearly $ 60,000, according to Bitstamp data.

The historically strong quarter got off to a positive start as Bitcoin climbed to a record $ 64,801 in the run-up to the Nasdaq debut of the Coinbase cryptocurrency exchange on April 14, amid sales by major investors.

The market therefore looked weak and took a hit in mid-May after US electric car maker Tesla removed Bitcoin as a payment alternative, citing environmental concerns and hopes for widespread corporate adoption. China’s reaffirmation of the crypto-mining ban and concerns about the Fed’s early withdrawal of incentives fueled the downward trend, pushing prices to a then four-month low of $ 30,000.

Bitcoin performance in the second quarter (Bitstamp / Data Wrapper)

Source: Bitstamp

Since then, Bitcoin has mainly traded in the $ 30,000 to $ 40,000 range, with the exception of a brief drop to $ 28,600 on June 22nd. The mood has turned quite pessimistic, as the directionless trade in the wake of El Salvador’s decision to introduce the cryptocurrency as legal tenderly shows.

In addition, fears of a deep sell-off persist, according to the so-called option smile – a diagram that is created by depicting implied volatilities versus options at different exercise prices that expire on the same day. Implied volatility relates to investors’ expectations of price turbulence over a period of time. It is influenced by the demand for call and put options.

Bitcoin options smile

Source: Genesis Volatility, @hodlandmotivate

The option smile for short-term and short-term trends shows a steep increase in strikes that are below the current Bitcoin price. This is a sign of relatively higher implied volatility or demand for options with lower exercise prices than those with higher exercise prices. In other words, investors continue to buy protective puts – contracts that give the buyer the right, but not the obligation, to sell the underlying asset, in this case Bitcoin, at a set price on or before a certain date.

Delta Exchange CEO Pankaj Balani doesn’t expect the bulls to see a strong comeback anytime soon.

“Bitcoin is in a consolidation phase and we think this can drag on into September,” he said. “Since its peak in April, institutional interest has waned and there is a lack of liquidity in both corporate and retail clients.”

According to Balani, the cryptocurrency remains vulnerable to any weakness on the macro front and could fall to the former hurdle of $ 19,666 (December 2017) in the event of widespread risk aversion.

For now, traditional markets are showing no signs of weakness. Despite recent aggressive speeches from the Fed, the S&P 500, Wall Street’s benchmark stock index, is on track to end the second quarter 8% higher, a fifth straight quarterly gain. Meanwhile, a safe haven gold has wiped out most of its gains, trading only 2% higher for the quarter, according to TradingView data.

The situation could change, however, if the US economy continues to accelerate and fears of an imminent Fed tightening revive.

However, some observers remain bullish, drawing parallels with the price action in 2013, when Bitcoin plunged from $ 250 to $ 45 in April, bringing the bull run to a screeching halt, only to climb to four-digit levels by November.

“While I don’t think it’s bottomed out, the market looks like 2013 and Bitcoin could see a mega-pump,” John Lilic, ConsenSys alum, polygon advisor and Dfinity whale, told CoinDesk in a Telegram Chat.

Matthew Dibb, Chief Operating Officer and Co-Founder of Stack Funds, disagrees with the 2013 scenario, saying the current market structure is completely different. However, he remains a cautious long-term bull.

“From a technical analysis perspective, the decline in the second quarter is a pullback,” Dibb said in a WhatsApp chat. “Bitcoin is still in the parabolic boom stage.”

A break out of the current range could rally towards $ 85,000 by March 2022, Dibb said.

Also read: Power, privacy and China’s digital currency

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