After bitcoin reached new record highs above $58,300 over the weekend, it lost altitude early Monday, dropping to less than $50,000, seemingly while U.S. Treasury Secretary Janet Yellen described it as a “highly speculative asset” that is extremely inefficient for transactions.
Speaking at a New York Times event, Yellen described the amount of energy consumed in processing bitcoin transactions “staggering,” Coindesk reported
Bitcoin has risen in four months from $10,000 to almost $60,000, with one bull market correction in the second half of January. Its recent rise from $30,000 to $58,000 was so steep that “a healthy cooling off of the market looks overdue,” Omkar Godbole wrote for Coindesk. “More so, as several technical analysis tools, including the widely tracked relative strength index (RSI), are signaling overstretched conditions with an above-70 reading.”
In technical analysis, there are support levels and resistance levels watched by traders and investors. These are price levels on charts that tend to act as barriers, preventing the price of an asset from getting pushed in a certain direction. These price points on a chart identify where the probabilities favor a pause or reversal of a prevailing trend, according to Investopedia.
Support happens where a downtrend is expected to pause due to a concentration of demand. Resistance happens where an uptrend is expected to pause temporarily, due to a concentration of supply.
Patrick Heusser, head of trading at Swiss-based Crypto Finance AG, said $52,000 is major support, adding that a significant correction may remain elusive, as the derivatives market is no longer exhibiting excess bullishness. The bitcoin price went below $52,000 to $51,607 on Monday, according to TradingView.com.
Other crypto analysts had different views on how low bitcoin could go. “The pullback can easily extend to the former resistance-turned-support near $42,000,” Joel Kruger, currency strategist at LMAX Digital, told CoinDesk.
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David Lifchitz, CIO for Paris-based quantitative trading firm ExoAlpha, said “$50,000 looks like the first stop for a mild pullback, but a second leg down could take it down to $40,000, while the $30,000 zone looks like the ultimate bottom should things turn ugly in the short term.”
Trading at just less than $54,000 per coin on Friday, bitcoin’s market value reached a new milestone higher than $1 trillion, CNBC reported. Institutional buy-in is credited with helping. Major investors and companies buying or agreeing to do business in bitcoin include the oldest bank in the U.S., the Bank of New York Mellon, Elon Musk’s Tesla, PayPal and JackDorsey’s payments company, Square.
Bitcoin “has started to get so big that it arguably creates its own demand as companies and institutions begin to make forays into a field they wouldn’t have touched a few months previously,” Deutsche Bank research strategist Jim Reid said in a note. “Ironically it is turning itself into a credible asset class to many by rallying so much of late and also by getting increasing institutional buy-in.”
Yellen warned on Monday about the dangers that bitcoin poses to investors and the public. “I don’t think that bitcoin … is widely used as a transaction mechanism,” she told CNBC’s Andrew Ross Sorkin at the New York Times’ “DealBook” conference. “To the extent it is used I fear it’s often for illicit finance.”
