Bitcoin’s recent price action has shown some signs of improvement after struggling below the 21-day moving average for most of December. The price has recently managed to inch above this moving average, but it still faces resistance. At the time of writing, Bitcoin is up by more than three percent and is trading slightly above the $101k mark. Here’s a breakdown of the reasons why Bitcoin could face a downturn according to analyst Nicholas Merten:
Lack of Major Announcements
Bitcoin’s price has largely been driven by announcements, such as the introduction of Bitcoin ETFs or corporate buys by firms like MicroStrategy. However, there haven’t been significant updates or announcements recently, which could slow down its growth momentum. Without new catalysts, Bitcoin may struggle to maintain its upward trajectory.
Slowing Demand from Key Players
Major players like ETFs and MicroStrategy have been instrumental in pushing Bitcoin’s price higher. But there are signs that the demand from these big entities is starting to slow. If they stop buying or even start selling, it could trigger a sharp correction in Bitcoin’s price.
Bitcoin’s Current Price is Already Factored In
Many of Bitcoin’s recent price gains have been priced in, meaning that its current value may be higher than the actual market demand. Unless new buying pressure comes in, a price correction may be inevitable.
Concerns Over Altcoins and Competition
Bitcoin is facing growing competition from altcoins and other cryptocurrencies like Ethereum and Solana. While these coins are still underperforming compared to Bitcoin, their rise might divert attention away from Bitcoin, leading to a decline in its market share and value.
Risk of a Market Correction
As we saw in the first quarter of 2024, the crypto market can correct rapidly, particularly for altcoins. If Bitcoin enters a downturn phase, it is likely to be among the worst performers in the market due to its high gains. Bitcoin and other altcoins could face a significant drop when the market starts to adjust.
Bitcoin’s Risk Profile in a Correction
Bitcoin is often seen as a “high-risk” investment, especially when compared to safer options like bonds or savings accounts. In a market correction, Bitcoin could become one of the worst-performing assets as investors flee to safer investments. Its previous gains could quickly unravel, leaving many holding the bag.
