Multiple factors are weighing on Bitcoin’s popularity. Where is the bottom of this round of correction?

Crypto markets fall across the board

Golden Finance data shows that on May 19, Bitcoin fell below the $40,000 mark, Ethereum fell below the $3,000 mark, and hot sectors such as NFT, platform coins, and algorithmic stablecoins all fell by more than 10%. The overall crypto market fell, and the market sentiment index was "extreme panic." At the same time, the digital currency sector fell and weakened, Nantian Information fell more than 4%, Chu Tianlong, Longco Technology, and Xinkaipu followed suit.

It is worth mentioning that the decline of Bitcoin in this round is close to 30%. In addition, according to AssetDash data, Ethereum's market value ranking has fallen to 20th in the world's assets, currently about 361.6 billion US dollars, and its market value has fallen by nearly 130 billion US dollars from its high point. It has now fallen below Bank of America. According to previous reports, Ethereum's market value ranking rose to 14th in the world's assets, with a market value of about 490.9 billion US dollars.

The deep pullback of Bitcoin and Ethereum triggered panic in the market. The top 10 currencies by market capitalization all fell to varying degrees.

Multiple factors weigh on Bitcoin’s popularity

Bitcoin fell below $40,000 per coin during the session, the first time since February 8. Negative news over the past week has dampened Bitcoin's popularity. From the market perspective, this round of decline is due to multiple factors.

First, after Musk changed his attitude towards Bitcoin on May 17, Bitcoin fell for three consecutive days. The Musk incident brought some changes to the on-chain data, and irrational panic trading was partially sold, mainly by retail investors. In addition, the energy consumption problem of Bitcoin driven by Musk has also suppressed the popularity of Bitcoin to a certain extent. Recently, Sven Giegold, a member of the European Parliament and a German politician, also called for a law to set a cap on the amount of electricity consumed by Bitcoin mining. He claimed that Bitcoin's carbon footprint harmed the German economy while increasing global greenhouse gas emissions. He added that controlling cryptocurrency mining should have been on the EU's agenda and said that regulation of the crypto mining industry was "overdue."

On the 18th, the Payment and Clearing Association of China, the China Banking Association and the Internet Finance Association jointly announced that financial institutions and payment institutions are not allowed to conduct business related to virtual currencies.

On the 19th, some asset management companies began to warn against investing in cryptocurrencies, including UBS, Pimco, T. Rowe Price and Glenmede Investment Management. UBS said, "We expect stricter policies and regulatory controls in the future as cryptocurrencies become mainstream." Nicholas Johnson, portfolio manager at Pimco, questioned the use of Bitcoin to hedge against inflation. In addition, Rob Sharps, president and head of investment at T. Rowe Price, said, "Cryptocurrencies have an impact on the entire capital market, and we are capital market experts. Ultimately, the tasks we manage for our clients are not well suited to investing in cryptocurrencies, and we recognize the high degree of speculation in this area."

At the macro market level, in the near term, cryptocurrencies may be greatly affected by the trends in the U.S. stock market, bond market and inflation levels. If the stock market enters a period of adjustment, bond prices fall, and inflationary pressure increases, the cryptocurrency market will also enter a period of adjustment.

Multiple factors have led to increased nervousness among retail investors. In addition, according to data provider Glassnode, cryptocurrency exchanges saw a net inflow of 30,749.89 BTC on Monday, the largest single-day inflow since March 12, 2020. This may indicate that retail traders want to liquidate their Bitcoin holdings in a falling market. Usually when investors want to liquidate their Bitcoin holdings, they transfer Bitcoin to exchanges. Lex Moskovski, chief investment officer of Moskovski Capital, also tweeted that 22,917 Bitcoins flowed into exchanges in one hour yesterday. This hourly inflow was only seen during the crash in March 2020.

Will the market stop falling and pull back or continue to decline?

In the face of this round of deep correction, analyst Carter Worth predicted in an interview with CNBC Fast Money this week that Bitcoin will hit a low of $29,000, and emphasized that the current Bitcoin price is a top support area, "If we fall 55%, we will be at the lower end of the support." According to statistics, a 55% drop from BTC's high will just fall below $30,000. In addition, Pankaj Balani, CEO of Delta Exchange, also said: "Bitcoin has not bottomed out yet" and is expected to "go lower again."

Hong Hao, managing director and head of research at Bocom International, said on Weibo that the Bitcoin price model chart shows that based on the stock-to-flow inventory/production ratio and halving event calculations, the 200-day and 1450-day moving averages are expected to reach 35,000 first (this line is drawn all the way to 1,000,000, and the model price operation calculations to date are still very interesting).

Several technical analysts on Wall Street said that the worst sell-off that Bitcoin is currently experiencing since the cryptocurrency boom last year is expected to intensify. Evercore ISI's Rich Ross believes that Bitcoin will repeat the fate of other speculative assets and fall back to its 200-day moving average, which is $40,000.

Other observers expect Bitcoin to see a pattern of "lower highs and lower lows," saying Musk's unpredictable tweets will deter traditional investors. There is also speculation that gold is beginning to attract funds from Bitcoin.

Mike Novogratz, CEO of Galaxy Digital, said in an interview that he expects Bitcoin to remain at $40,000 and rise again after a period of consolidation. Novogratz claimed that he saw more and more institutions entering the Bitcoin field, adding that he is no longer a "lonely person on Wall Street." Earlier, Mike Novogratz revealed that about 85% of his total assets are cryptocurrencies.