Bitcoin, the world’s top cryptocurrency, is likely to drop to as low as $13,000–a 40% drop from current levels–according to many strategists.
FTX Proves Problematic for Crypto
The recent fallout from FTX.com not being acquired by Binance has prompted many crypto markets to succumb to weeks of deleveraging. A “cascade of margin calls” is underway, according to Nikolaos Panigirtzoglou from Alameda Research.
“What makes this new phase of crypto deleveraging induced by the apparent collapse of Alameda Research and FTX more problematic is that the number of entities with stronger balance sheets able to rescue those with low capital and high leverage is shrinking” in the crypto niche, said Alameda Research.
The FTX.com collapse has raised concerns throughout the crypto world. Many traders are worried about a potential crypto-currency exchange’s bankruptcy that would destroy many coins’ values–not just Bitcoin.
For those interested in historical occurrences, past crypto rallies show that Bitcoin has a tendency to fall around 80% from all-time highs. For example, BTC dropped to $3,000 in 2018 after hitting a peak of $20,000 in late 2017.
Ian Harnett, co-founder and chief investment officer of Absolute Strategy Research says a plummet like this in 2022 “would take you back to about $13,000.”
The correlation to 2017-18? Bitcoin reached a record high of close to $69,000 in 2021.
“When that liquidity is taken away–and that’s what the central banks are doing at the moment–then you see those markets come under extreme pressure,” said Harnett. “In a world where liquidity is plentiful, the Bitcoins of the world do well.”
So what’s going on in the world?
The current inflation and the Federal Reserve raising interest rates by 75 basis points–the largest spike since 1994–have the most to do with it. This has crypto traders anxious.
In the past two weeks alone, the combined value of all cryptocurrencies dropped more than $350 billion. BTC has lost more than half of its value since last year.
The crypto market, however, was already struggling before the Federal Reserve’s spike.