As bitcoin nears support at $30,000, analysts are divided on what happens next. Some see that level holding and a return toward $40,000. Others point to weak demand, and say further declines are likely.
“We believe that there is not much downside in the short term as we trade near the bottom end of the $30,000-$42,000 trading range,” Delta Exchange CEO Pankaj Balani said. “In the short term, the macro environment does not look weak, with broader markets continuing to rally and U.S. tech stocks posting all-time weekly highs.”
The S&P 500, Wall Street’s benchmark equity index, rose 1.4% on Monday, signaling a reevaluation of risk in financial markets following last week’s drubbing. Asian shares traded higher early today as Fed Chairman Jerome Powell’s comments quelled taper fears.
In written remarks prepared for his testimony before the House Select Subcommittee released yesterday, Powell reiterated his view that a recent uptick in inflation would prove short-lived. Stocks, commodities and bitcoin took a hit last week while the dollar rallied on the Federal Reserve’s unexpectedly hawkish tone on interest rates.
Balani foresees a bounce to $40,000 in coming weeks. Singapore-based QCP Capital said it expects bitcoin to continue trading in the range of $30,000 to $40,000.
“With retail now going short, the market will be primed for short squeezes,” QCP Capital said in its Telegram channel on Monday. “Historically, whenever retail starts going short like this, the market has tended to find it hard to perpetuate the downtrend.”
The firm pointed to the recent negative funding rate in perpetual futures listed on FTX, Deribit, and BitMEX as evidence of retailers’ short bias. The funding rate is the cost of holding long/short positions. A negative print implies that many traders are bearish, or holding short positions.
Bitcoin bottomed out in the first quarter of 2019 with negative funding rates, and rallied sharply in the following three months. Negative rates observed after the March 2020 crash and in third-quarter 2020 also marked price bottoms.
QCP’s preferred trade remains a short strangle – an option strategy aimed at benefiting from consolidation/impending drop in price volatility. It involves selling the same expiry call and put options at strikes equidistant from the spot market price.
According to Amber Group, some investors have been selling puts below $30,000 – a sign they are expecting the key support to hold. Selling options or strategies like short strangle are quite risky and better left to big firms and institutions with ample capital supply.
Others are less sanguine, with Stack Funds saying the cryptocurrency could drop below $30,000.
“We are still witnessing moderate incoming flows from family office and high net worth individuals, however,…