Bitcoin had its weakest week of the year

Bitcoin just had its biggest weekly decline since November 2022, when the crypto market was rocked by the collapse of the FTX exchange, the world's most heralded cryptocurrency plummeting last Thursday below the price of $26,000, a level it had not touched before from mid-June.

Among the most widely circulated reasons for the decline are Elon Musk's announcement of Bitcoin sales, the interest rate outlook in the United States, or the recent market structure and development that favored the sudden drop in quotes. But, some analysts are of the opinion that the recent decline is something episodic and see potential for growth for the cryptocurrency in the medium and long term, primarily against the background of the prospects of the launch of some ETFs with asset backing Bitocoin in the United States and the so-called " halvings" from next year, according to international sites dedicated to the crypto area.

• Elon Musk, SpaceX and the Federal Reserve's monetary policy

Josh Gilbert, market analyst at eToro, attributed the cryptocurrency's recent decline to a report that Elon Musk's SpaceX has sold some or all of its $373 million holding in Bitcoin, which appeared in an article of August 17 in The Wall Street Journal. "Any time a big name in the industry sells Bitcoin, especially someone as influential as Musk, it puts pressure on the price," Gilbert was quoted as saying by Cointelegraph late last week.

According to the analyst, another factor that can explain Bitcoin's decline is the sudden change in market sentiment due to expectations of the Federal Reserve's interest rate policy. "In recent weeks we have seen weakness in global markets - particularly for risk assets - with the expectation that rates will remain high for a long time; it was a recipe for backlash," Gilbert said, according to the same source.

• The yield of government securities, the action of the "whales" and the cascade sales

Lewis Harland, trader at Decentral Park Capital, sees the recent rise in US Treasury yields among the causes of the sell-off in the crypto market. "The yield of securities with a ten-year maturity has reached the maximum of the last fifteen years. It's something negative (eng. bearish) for risky assets in general," he said, quoted by CoinDesk.

According to trader TheFlowHorse (pseudonym), the sudden drop suggests a massive sell-off by a large market player, a so-called "whale", which has put additional pressure on derivatives. "It was not a natural waterfall. Someone big came out with a purpose, setting in motion a cascade of sell orders," the trader said, referring to the recorded volumes, according to Cointelegraph.

• Excessive market leverage and low volatility

Crypto market analysis firm K33 Research believes that Bitcoin's decline can be explained by excessive leverage in the market, according to Coin Desk.

"The sudden drop in crypto prices was driven by market structure rather than news," K33 wrote in a report. "News of SpaceX's sale of Bitcoin or expectations of rising interest rates cannot explain the timing or intensity of the decline. However, the accumulation of leverage - open interest in the derivatives market - created the perfect conditions for the rapid emergence of feedback loops, as can be seen from the massive liquidations and the subsequent decline of open interest positions".

Decentral Park Capital's Lewis Harland agrees, arguing that the market's poor liquidity and low volatility of late have created the conditions for a sudden move. "We have seen an increase in the level of open interest for Bitcoin, with a tendency towards short positions (n.r. in which they are betting on the decline). The break below the $28,500 level led to the liquidation of long positions. That combined with selling in the spot market (...)," said the trader, quoted by Coin Desk. Last week, Bitcoin had a decline of about 11.5% (according to the Investing.com Bitcoin Index), after a sharp fall on Thursday, which continued on Friday, to stabilize around the 26,000 level in the following days. USD.

• The prospect of the launch of ETFs with asset-backed Bitcoin spot, in the United State

The recent drop in Bitcoin price is not a cause for concern for crypto supporters, who see the world's most important digital currency above $100,000 in the medium term amid approaching events that should, in theory, support BTC's price.

Tom Lee, managing partner and head of research at market analysis and strategy firm Fundstrat, believes that the price of Bitcoin will exceed $150,000 by the end of 2024 if spot Bitcoin-backed ETFs are approved by the Commission on United States Securities and Exchange Commission (SEC), writes Cointelegraph. According to the head of Fundstrat, the successful launch of ETFs would change the supply-demand dynamics of Bitcoin favoring a considerable price appreciation. "If the ETF is approved, I think the demand will be greater than the daily supply of Bitcoin, so the clearing price ... is over $150,000, maybe $180,000," Lee said last week on CNBC, as picked up by Cointelegraph.

But the head of Fundstrat pointed out that this scenario is valid as long as the spot Bitcoin ETF is approved in the United States, because in Europe there is already such an instrument. Currently, several giants in asset management have submitted applications for approval to the SEC to launch ETFs on Bitcoin spot, including BlackRock (the world's largest asset manager) ARK Invest, Bitwise Asset Management, VanEck or Fidelity. But some may find out the SEC's answer in 2024, as the US market watchdog has 240 days to make its final decision.

• Bitcoin "Halving"

Even if the requests to launch ETFs will be rejected, Lee still sees a considerable increase in the price of Bitcoin, coming from the next "halving" of the cryptocurrency, which will take place in April 2024. "We will have another decrease in supply, so that the price must rise. But it won't be six figures," Fundstrat's head told CNBC, quoted by Cointelegraph.

Adam Back, CEO of Blockstream, a provider of blockchain technology, believes that Bitcoin will reach the $100,000 mark in the month before the "halving". But other market analysts are not so optimistic. Jesse Myer, co-founder of Bitcoin investment firm Onramp, stated last week that prices will reflect the new reality (n.e. of supply and demand) within 12-18 months of the event. "Bitcoin will not rise to 100,000 before the next halving," he said, according to Cointelegraph.

Bitcoin's so-called "halvings" reduce rewards by 50% for volunteer Bitcoin miners who use specialized equipment to validate transactions on the blockchain network and create new tokens. The purpose of the "halving" is to reduce the number of new units of Bitcoin released into the market, which means that the supply decreases. Or, theoretically, a reduced supply and at least a constant demand usually leads to an increase in prices.

It must be said that in recent years, supporters of the crypto area have anticipated prices of more than $100,000 for Bitcoin, but that did not materialize, the highest level reached by the digital currency being almost $68,000 in November 2021.

On the other hand, there are reputable analysts and prominent figures in the financial world who are skeptical about cryptocurrencies, believing that they cannot function as a medium of exchange, as a store of value, some even characterizing them as ponzi schemes.

"Cryptocurrencies have virtually no value and produce nothing. They don't reproduce, they can't mail you a check, they can't do anything, and what you're hoping for is that someone comes along and pays you more money for them later, but then that person has a problem. In terms of value - zero," legendary investor Warren Buffett said in 2020 on CNBC.

Since the start of the year as of 1 p.m. yesterday, Bitcoin was up about 57%, after the world's top cryptocurrency fell 64% in 2022, according to Investing.com data.