Bitcoin has once again walked through a minor crisis on the price approaching $30k. That level has the potential to trigger an even broader sell-off in the cryptocurrency market. The quick rebound suggests that the bulls are willing and able to defend the critical round level.
However, everything is not so simple, and one of the leading indicators is trading volume. This is exactly where the situation is alarming, as the trading volume has decreased significantly in recent months. The average daily trading volume is 76% lower than the levels when the price peaked above $60K. How negative is this for the crypto market? Investors and traders choose to stay out of the market, and attempts to buy back the decline are incredibly cautious.
A triangle with downside resistance and horizontal support at $31.5K continues to form on the chart. Though the bulls manage to push the price away from the bottom of this figure time after time, the sell-off episodes start from lower and lower levels. And this has fatal consequences for the bitcoin price.
With their massive share of speculative capital, cryptocurrencies are not characterised by periods of calm at high prices: rapid growth or a deafening collapse followed by a consolidation. This dramatically increases the odds that the exit from the consolidation phase will be down with a potential $10k target at some point next year.
Yesterday, we saw that both when the price of the benchmark cryptocurrency fell and when it rebounded, trading volume showed little to no change. This means that the market was driven by small open investor positions, indicating a deep vulnerability to the sentiment of a small group. It is hard to see bullish forces accumulating in such a situation to break through critical levels.
Elsewhere, despite local attacks against cryptocurrencies and exchanges by authorities in developed economies, senior banking officials still confirm that cryptocurrencies are not a system threat. Probably, that is why we are not seeing a harsh reaction from regulators around the world. For example, the Bank of England deputy governor said that cryptocurrencies “have not yet crossed the financial stability risk line”.
It is widely recognised that cryptocurrencies are volatile. Still, as long as monetary authorities in developed economies look at digital currencies through the lens of a “technology casino,” crypto market participants have time to make a profit before the size of the market forces regulators to stop the free development of digital currencies. That moment will probably coincide with the launch of national digital currencies. For now, the “casino” works and consistently win.