Bitcoin price has once again dipped after failing to reignite its bullish rally following a similar retracement last week. In the last 24 hours, Bitcoin dropped by about $2,462, which is over 7.50% drop. Is it the end of the Bitcoin rally? Should investors prepare to cash out?
Well, the bubble seems to be ready to burst any time from now.
For 10 consecutive days, Bitcoin has been unable to remain above the Moving average signalling the onset of a possible bearish trend. But the question remains: how low shall it go? Do we expect it to go as low as it went in 2017?
Uncertain times ahead for Bitcoin cryptocurrency
Bitcoin is probably the only cryptocurrency that has no other use rather than acting as a peer-to-peer payment option. And its value makes it a lucrative investment option, which has even driven companies like PayPal, MicroStrategy and Square to invest in it.
However, its 2020 to 2021 rally may have stretched its limits too far within a very short timeframe. In less than 3 months the value of a single bitcoin coin has risen by a whopping $22,000 to hit an all-time high of $41,515, a price some cryptocurrencies only dream off.
And heating that all-time high, it has been struggling in the past two weeks to maintain its price above $35,000. We have had large swings where it has dropped to as low as $29,000 and gotten back to $38,000. But that could be as a result of being overbought. Everybody cashed in on the bullish trend and the digital coin may be preparing for a nosedive to relive some of the pressure.
Over $3 billion worth of Bitcoin options set to expire at the end of January 2021
According to bybt.com, by January 21st, 2021, there were about 263,670 open Bitcoin options which would translate to about $8.4 billion worth of Bitcoin.
Bitcoin options are Bitcoin derivative products. They are contracts that give Bitcoin investors the right to buy or sell Bitcoin at a predetermined price within a predetermined timeframe without being obliged to do so. They provide investors with the chance to make money by betting on which side the price of Bitcoin will move to without having to own the digital currency itself.
Of the 263,670 open Bitcoin options, about 101,000 will be closing on January 29th. Most of these options were call options placed in favour of the previous bullish trend as it surged towards its all-time high last week.
However, following the current dip in prices, investors may be interested in placing more put options in future and this could pile more pressure on Bitcoin to start a long term bearish trend.
Janet Yellen suggests ‘curtailing’ cryptocurrencies such as Bitcoin
Another factor that may play a huge role in Bitcoin price movements in the United States government.
As the new president of United States took office on 20th, January 2021, his nominee for treasury secretary, Janet Yellen suggested curtailing cryptocurrencies like Bitcoin over fears that they are “mainly” used to facilitate illegal activities.
“You’re absolutely right that the technologies to accomplish this change over time, and we need to make sure that our methods for dealing with these matters, with terrorist financing, change along with changing technology… Cryptocurrencies are a particular concern. I think many are used – at least in a transaction sense – mainly for illicit financing… And I think we really need to examine ways in which we can curtail their use and make sure that money laundering doesn’t occur through those channels,” Yellen said.
Yellen comments came after Christine Lagarde, the president of ECB, last week said that Bitcoin had been used for money laundering activity.
There are also major investors like Warren Buffet who have also expressed concerns about bitcoin in the past.
Last year, Warren said, “Bitcoin has been used to move around a fair amount of money illegally.”
Regulators have also urged caution into investing into cryptocurrencies like Bitcoin with UK’s Financial Conduct Authority saying that those investing in them risk losing their money in case of anything.
If the regulatory authorities and governments were to tighten their stance over cryptocurrencies like Bitcoin, investors would be less likely to be willing to invest in them and most likely that would trigger a major drop in the prices of cryptocurrencies like Bitcoin.