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V-Shaped Recovery From Bitcoin's Biggest Drop Since March Unlikely, Say Analysts

Despite a slight bounce Friday morning, some analysts don't expect bitcoin to chart a quick recovery from the double-digit price drop over the last two days.

Sep 4, 2020 at 11:07 a.m. UTC
Updated Sep 14, 2021 at 9:52 a.m. UTC

Despite a slight bounce Friday morning, some analysts don't expect bitcoin to chart a quick recovery from the double-digit price drop over the last two days.

  • Bitcoin fell by over 10% on Thursday to $10,006, according to CoinDesk's Bitcoin Price Index.
  • That's the biggest single-day percentage decline since March 12 when bitcoin prices crashed around 40% amid a major sell-off across the equities markets.
  • Other data sources such as Bitstamp even logged bitcoin as dropping a little below $10,000.
  • At the press-time price of $10,520, the cryptocurrency is down 18.59% from the recent high of $12,476 registered on Aug. 17.

Bitcoin's daily chart

  • Similar double-digit price pullbacks observed in April and May were quickly reversed in a couple of days, a sign of buy-the-dip mentality.
  • This time, though, a quick V-shaped recovery back to recent highs around $12,000 looks unlikely due to cryptocurrency's increased sensitivity to traditional markets.
  • "The worst may be behind us, but bitcoin can take days to form a good base," crypto analyst Edward Morra, who called the market top at $12,000, tweeted early on Friday.
  • Matthew Dibb, co-founder, and COO of Stack, a provider of cryptocurrency trackers and funds, told CoinDesk that prices could drop below $10,000 if the global equity markets retrace.
  • "Macro factors are currently at play, and bitcoin shows a higher correlation to global equities markets in this 'risk-off' period," Dibb said.
  • Indeed, sharp losses on Wall Street look to have accentuated the bitcoin price drop on Thursday.
  • Stocks may extend the sell-off, pushing bitcoin below $10,000 on Friday if the all-important U.S. non-farm payrolls report shows the labor recovery is losing momentum.
  • The data, scheduled for release at 12:30 UTC, is forecast to show the economy added 1.4 million jobs in August versus 1.76 million additions in July.
  • Joel Kruger, a currency strategist at LMAX Group and macro trader at MarketPunks also sees scope for additional price declines on the back of risk aversion in equity markets.
  • "The next key support comes in the form of the June low at around $8,900," Kruger told CoinDesk in a Telegram chat.
  • However, he still expects bitcoin will eventually realize its potential as a store of value.
  • Additionally, activity in the bitcoin options market suggests investors are adding bets to position for an extended decline in the cryptocurrency.

Bitcoin put-call skew

  • The one-month and three-month put-call skews have recovered sharply to positive territory this week.
  • That's probably due to investors buying put options (bearish bets) to hedge buy positions in the spot/futures market, according to Vishal Shah, an options trader and founder of Polychain-backed derivatives exchange Alpha5.

DISCLOSURE

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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