So, you woke up like any other morning and checked your crypto portfolio. Bitcoin is tumbling, and while the bearish trend has been ongoing, the past few days were quite massive. If you are like me, you were concerned.

Bitcoin is trading at $30,000 after dipping to $26,500, the lowest since July 2021. On Monday alone, it dipped about 10%. So what caused this sudden price decline?

(Click on image to enlarge)

Causes of the Massive Bitcoin Decline

Analysts have cited various factors that have caused the recent plummet. The leading causes include; 

• Central banks raising the benchmark rates 
• Investors offloading assets accumulated during the pandemic
• Macroeconomics 

Tight Monetary Policies

Central banks' money tightening has made investors run from risk assets. Remember, premier banks have started reversing the low benchmark interest rate. The Fed increased interest rates by 0.5%, the highest raise in 22 years. 

The effect of the Central Bank withdrawing liquidity is a sell-off in related risk markets. Bitcoin is correlated to S&P 500. Global economic factors are therefore dragging it in.  Also, unprecedented stimulus, especially due to the coronavirus, might have inflated global assets, making matters worse. We might witness a decline as assets retrace to real value. 

Analysts are expecting another Fed interest rate hike. This means more uncertainties. However, it could increase volatility and provide a  good buying opportunity. Prices head to levels where investors' confidence is, and more investment follows.

Macroeconomics Factors

The recent market behavior is not solely due to monetary policies. Macroeconomics policies are at play in driving the bitcoin prices low. The dollar's growing strength, high inflation levels, and poor global growth outlook have a higher weight than Bitcoin's adoption, fundamentals, and growth potential. The consumer price index increased by 8.3% in the past year, indicating the largest inflation growth since 1981.

A Shift to Risk-off Assets

Market observers describe the unfolding situation as risk-off trading. There are inflation and recession concerns that explain global markets' poor performance, including Bitcoin, pushing investors to risk-off investments. For instance, Luna Guard Foundation dumped Bitcoin in the market in a desperate attempt to fix the UST peg.

Terra UST stablecoin crashed almost 100%, sending shivers across the market. This has increased the downward pressure on Bitcoin. The stable coin lost its US dollar peg, which saw its value drop from $1 to 66 cents. It has, however, recovered to around 80 cents. The more this problem persists, the more it adds anxiety to investors and increases Bitcoins pressure.

Despite the declining liquidity, the coin developers have made efforts to stabilize the cryptocurrency. Terra Reserve and the Luna Foundation Guard announced plans to issue $1.5 billion and BTC and USD-dominated loans.

Ukraine -Russia War 

Like any other sector, the war between Ukraine and Russia has also affected the crypto market and Bitcoins. Investors are waiting to see how things unfold. Therefore, the price dips as investors shift their investment to safe havens and offload their Bitcoin holding.

A Look from Technical Perspective 

Technical analysts will be watching the $30000 psychological levels and see if the bulls will manage to turn the resistance to support. If the price breaks below the support levels, they will become the new resistance which could see Bitcoin price tank further.

If the pioneer cryptocurrency breaks above resistance levels, it could become new support. Perhaps the major resistance to watch is the $37000 level where orders will be stacking. If bulls manage to break out, the price could be ready for a long-term uptrend.  The $40000 level will also be an interesting watch. The last time Bitcoin was at this level, it jumped by 10% after an executive order requiring government agencies to create a crypto regulation policy. The president called for the creation of a state-issued central bank digital currency. 

Since December, it has hovered between $50000 and $34,000 after hitting a $68 000 all-time high in November 2021. Federal Reserve policies will affect the cryptocurrency market, leading to massive volatility in the Bitcoin price in the coming weeks. My Digital Money CEO, Collin Plume, opined that another sell-off could push the prices even lower. The price could take a beating and even hit $20000 levels which triggered a rally taking Bitcoin to an all-time high of $68000. 

It is not unlikely the price could dip to this level before rising to the forecasted $100000. In any case, Bitcoin is a highly volatile and speculative asset. With more people joining crypto adoption, Digital tokens have exhibited increasing volatility. Experts predict the price could hit $300 000 in the coming years. CEO of Allnodes Inc, Boyko Romanovsky, encourages investors to keep their faith. From his perspective, we are past the point where crypto could become obsolete. Perhaps the downtrend is a good thing. It is an opportunity to buy low and ride the next bull run.

CoinCodexSentiments

Off the bat, CoinCodex opines that it is the wrong time to buy Bitcoin. According to the crypto prediction site, the current sentiment is bearish with investors exhibiting extreme fears. But on the positive side, CoinCodex predicts the price to grow by 0.44%  by May 17 to trade at $28759. 

When projected on the growth trajectory of major technological innovations such as the internet, google, Facebook and mobile, the predictions show Bitcoin price is a buy in the long term. For instance, if Bitcoin follows Facebook's growth trajectory, Bitcoin's price target by 12 May 2023 would be $63 518. This means Bitcoin could grow by 221% in the next year. 

But based on the technical indicator, the price forecast is bearish. Data shows that 27 indicators give bearish signals while only seven are bullish. This translates to a bearish sentiment of 68% compared to a bullish sentiment of 32%. 

(Click on image to enlarge)

For instance, daily EMA and SMA of periods 3,5, 10, 21, 50, 100, and 200 are all bearish. Similarly, weekly SMA and EMA of periods 21, 50, and 100 are bearish. Only SMA 200 and EMS 200  are bullish. 

However, Bitcoin oscillators signal that investors should wait in readiness to jump into the market. Five oscillators, including the Commodity channel index and awesome, are neutral. Bearish oscillators are there including ADI (14), while Stoch RSI of period 14 and the other four oscillators are bullish.

Takeaway 

The recent Bitcoin dip was caused by a combination of factors ranging from government monetary policies to macroeconomics factors. Although the price has rallied in the past 24 hours, Bitcoin investors are not out of the woods yet. But it is not all gloom and doom. Perhaps it is an ideal time to add to your positions. When the next bull run comes, you will be ready!