After bitcoin’s biggest weekly plunge this year some investors expect it to sink below US$5,000 by the year-end
- Investors were disappointed by the poor reception to the launch of Bakkt, the first US-regulated bitcoin futures exchange operated by ICE
- Although some investors remain pessimistic about the cryptocurrency’s outlook, investors are cautiously stepping into to take advantage of the decline
Bitcoin’s 20 per cent plunge last week to under US$10,000 for the first time since June has raised fears of a free fall in the digital currency’s value, with some traders expecting it to drop below US$5,000 before the end of the year.
Investors dumped the asset as they were disappointed by the launch of Bakkt, the first US-regulated physically settled bitcoin futures exchange operated by the Intercontinental Exchange (ICE), analysts said. Only 72 monthly contracts were recorded on its debut on September 23. In contrast, 221 contracts were traded in the first hour when rival exchange CME launched its cash bitcoin futures contract in December 2017, according to Bloomberg.
Since reaching the year’s high of US$13,830 in June, bitcoin’s value has plunged 40 per cent. On Monday, it fell a further 3 per cent to US$7,823.91, before rising to US$8,372.25 on Tuesday evening.
Stephen Innes, Asia-Pacific market strategist for foreign exchange trading platform AXI Trader, said he believes that institutional investors were behind the recent plunge in bitcoin after the underwhelming launch of Bakkt.
And he does not expect the outlook to improve any time soon. “There has been no rationale for bitcoin’s upwards movement unless you are an emotional trader,” said Innes. “I believe the sell-off will intensify to US$5,000 before Christmas.”
Innes said bitcoin correlates with emerging market assets. Unless the ongoing US-China trade war or Brexit are resolved soon, or there is a major turnaround in European data before the year-end, then bitcoin’s performance will track that of emerging market assets, meaning they would underperform during the current high risk aversion environment.
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In August, the Shanghai Composite Index lost 1.6 per cent, while the Hang Seng Index dropped a larger 7.4 per cent, but both indices managed to finish September in positive territory.
But overall interest for bitcoin has actually picked up, as the fundamentals supporting the cryptocurrency still remain strong, said Ben Roth, global head of trading at Kenetic Capital, a digital asset proprietary trading firm.
Many investors continue to view bitcoin as an attractive portfolio constituent and potential hedge against inflation, Roth said.
He also said that the tripling of bitcoin’s value from April, when it was quoted at around US$4,100 to its year’s high in June, was unmatched by other asset classes.
“The continual printing of money by global central banks and record low interest rates in all major currencies are likely to provide a favourable tailwind for bitcoin, just as they have done for gold, silver and other commodities,” said Roth.
He said after last week’s drop in bitcoin’s value some investors who have been sitting on the sidelines have started to dip their toes back in.
