Bitcoin Prices Are Falling. Why Analysts Say a ‘Massive Capitulation’ Is Coming.

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Bitcoin
and other cryptocurrencies were under pressure on Monday. While stock and bond markets were closed for the Labor Day holiday in the U.S., the 24/7 nature of crypto means no respite from volatility for investors.

The price of Bitcoin fell less than 1% over the past 24 hours to $19,700, having climbed above $20,300 on Friday before falling back, in line with a tumble in the stock market. Trading below the key $20,000 level, the largest digital asset is now outside of the $20,000 to $25,000 range in which it has stagnated for much of the summer after a dramatic selloff in mid-June knocked Bitcoin down from $30,000.

“Bitcoin is continuing to show resilience around $20,000 but that’s really being put to the test as risk aversion sweeps through the markets once more,” said Craig Erlam, an analyst at broker Oanda. “A significant break at this point could be really damaging, with the following key level below here being the June lows around $17,500.”

“Considering the outlook for risk appetite in the near term, it’s not looking good.”

That view is shared by other analysts, too.

“Bitcoin’s daily range has narrowed massively, and this is giving us an indication that a massive capitulation is coming,” said Naeem Aslam, an analyst at broker AveTrade. “We believe that this capitulation can be any day now as Bitcoin has been trading in a narrow range for a long period of time.”

Aslam cited two factors as evidence that traders have been fighting sell pressure to keep crypto prices higher. 

The first is that Bitcoin has been largely able to avoid the selloff that has hit the stock market in recent weeks, with the

Dow Jones Industrial Average
and

S&P 500
both down almost 3% in the past five sessions. Cryptocurrencies should, in theory, trade as uncorrelated assets, but have shown to be linked to swings in other risk-sensitive assets, particularly stocks. Bitcoin has avoided the outsized downside it has been vulnerable to in the past.

The second factor is a continued rout in the currency market, where most major currencies have lost out drastically to the U.S. dollar. The U.S. dollar index, which measures the greenback against a basket of six peers, has climbed 14% so far this year and was another 0.2% higher Monday. A strengthening dollar has been a significant headwind to Bitcoin prices in the past.

“These two factors indicate that bulls are holding on to their ground very well, and they have not allowed the Bitcoin price to get battered,” said Aslam. “On the flip side, if there is a capitulation to the downside, then the next move isn’t going to be about the $18,000 price level or $15,000; the sell-off could be so intense that it could easily push the prices towards the $12,000 price mark.”

Bitcoin prices have proved tricky to predict in the short term—much to the chagrin of analysts’ and ambitious price targets—and cryptos are known for their volatility. But with inflation remaining high and the Federal Reserve showing few signs of stopping their tightening of financial conditions—which dents demand for risk-sensitive assets—Bitcoin is likely to remain under pressure.

Beyond Bitcoin,

Ether,
the second-largest crypto, was up less than 1% as anticipation continued to build around “The Merge,” a hotly-anticipated and long-awaited critical upgrade to the Ethereum blockchain network. But altcoins, or smaller cryptos, were weaker, as

Solana
lost 1% and

Cardano
was 3% lower. Memecoins—initially intended as internet jokes—also fell, with

Dogecoin
dropping 3% and

Shiba Inu
shedding 6%.

Write to Jack Denton at [email protected]