Bitcoin plummeted below $60,000 for the first time in weeks, as volatility in the crypto markets at large continues. Bitcoin reached an all time high of $69,000 on November 10. Despite the current volatility, the crypto is also up 107% year-to-date, according to Coingecko.
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Several factors might be causing the slump, include China’s expanding crackdown on crypto mining, as well as crypto tax provisions in the U.S. infrastructure bill.
Martha Reyes, head of research at digital asset prime brokerage and exchange BEQUANT, told GOBankingRates that the two Bitcoin flush outs we have seen so far this month after a very strong run up in October are reminiscent of the September crashes.
“In that month, we ran past the $53K mark fueled by excitement around El Salvador, only to fall back to $40K, so an even steeper drop than we are seeing so far,” she said. “Open interest has fallen from highs and funding rates were even negative on some exchanges, so investors are not as bullish. Strong retail sales out of the U.S. yesterday despite high inflation, mean higher inflation readings ahead, but a still supportive growth outlook. Recall that BTC is 7x as volatile as the S&P and that’s even more the case for the altcoins. It is also a good opportunity to pick up coins with good underlying prospects.”
The Chinese government said this week that the next step will focus on cracking down on large-scale mining, state-owned entities involved in mining and Bitcoin mining, according to an official statement. The statement added that the government will start imposing punitive electricity prices on them, “forming a high-pressure situation that continues to rectify virtual currency “mining” activities.”.
In the U.S., the $1 trillion Infrastructure bill President Joe Biden signed into law earlier this week contains a provision about the crypto industry, aimed to help pay for a part of the bill. The provision broadens the definition of broker, saying “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person,” according to the text of the bill. This language would require crypto brokers to report customer information to the Internal Revenue Service, and that it doesn’t exclude miners, software developers, stakers and other individuals in the crypto economy who don’t have customers.
Several lawmakers are again taking aim at it, including Rep. Daren Soto, who wrote a letter on November 15 — along with other co-signers — to Speaker of the House Nancy Pelosi, urging her to reverse the controversial digital asset provision. The signers of the letter said the provision would “cripple the industry,” and they urge the promotion of “American innovation.”
Mikkel Morch, executive director & risk management at crypto/digital assets hedge fund ARK36, told GOBankingRates that “after the correction, Bitcoin has found strong support at the $59K threshold which confirms that the bulls are not ready to give up without a fierce fight.”
Morch added that it is not yet clear whether the drop was a healthy market shakeout of overleveraged longs. “Such a shakeout would be the way for the markets to eliminate any short-term structural weaknesses. In such a case, the drawdown would not have done any damage to the macro outlook and we would expect a stronger bounce if broader fundamentals remain positive,” he said.
However, he continued, the drop may also signal the start of more downside, and the longer we stay at the current price level, the bigger the possibility of an even greater pullback.
“Investors should be on the watch for any negative macro news that may cause the markets to lose confidence in uptrend continuation and ignite a bigger correction. If the $59K support is breached, Bitcoin may drop all the way to $49K where another strong support area is found,” he said.
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