Bitcoin Faces Unprecedented Crisis - USD 30,000 is Not That Far Away
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The global markets are going down in recent weeks and bitcoin is one of the assets that took the biggest hit. The bitcoin price has plunged 15% in September and it shows no sign of recovering to USD 45,000, a key resistance. Bitcoin is now trading below its 21-week exponential moving average and this is considered by many a turn into a bear market. But now, investors have more than one thing to worry about.
Cryptocurrency exchanges forced to clean out users
Regulation is one of the biggest enemies of cryptocurrencies and this month many countries decided to tighten their regulations.
Last Friday, China reiterated that all cryptocurrency transactions are illegal and it “seriously endangers the safety of people’s assets”, said the People's Bank of China. Together with the United States, China is the world’s largest cryptocurrency market and any bad news from China could cause an earthquake in the bitcoin market.
Under pressure from the government, the China-based crypto Exchange Huobi announced its decision to expel Chinese users by the end of December 31, 2021. The Huobi token saw a 38% plunge after the announcement. As chances users make up the majority of users, many believe Huobi will gradually go out of business.
Binance, one of the world’s largest cryptocurrency exchanges, announced on Monday that it will ban Singapore users from buying and trading cryptocurrency to comply with local regulations. Binance is facing resistance from more and more countries, first Germany, then the United Kingdom, and now Singapore. Hong Kong, Italy, and Japan also join in the group to impose scrutiny on Binance. Banks including Barclays, Nationwide, HSBC, and Santander have delisted Binance.
This year has been a year of increased adoption as well as regulatory focus. What happened to Binance may soon happen to other exchanges or crypto-related companies. investors shouldn’t necessarily flee, but it is a strong reminder that bitcoin is a highly volatile asset and investors should brace for some major price pull-back.
Bitcoin to hit USD 30k?
Buyers have been trying to flip USD 45,000 back to support and failed. Bitcoin has dropped below USD 40,000 several times and is now trading in a narrow range of USD 42,000-USD 44,000. The longer it stays below USD 45,000, the more likely its strength will be exhausted.
Market analyst Nunya Bizniz pointed out that bitcoin is now at a critical level. It is trading below its 21-week exponential moving average for the 19th time in history. If we look back on history, it only managed to resume its bullish momentum out of four times. The last time this indicator flashed, on May 2021, the bitcoin price crashed below USD 30,000.
The 20-day EMA is sliding lower and the relative strength index is well below the midpoint. Now the 100-day simple moving average (USD 41,078) is a critical level to watch: if bears manage to push bitcoin below it, a big sell-off could be on the way and push the price of bitcoin to USD 37,332, then to USD 30,000.
How to turn the downside risk into profits?
Bitcoin going down is scary but that’s the price we pay when dealing with such a volatile asset. Wait, do we really have to pay the price? With futures trading, we can actually make profits when the price of bitcoin goes down.
Let’s see how we can benefit from the price drop of bitcoin:
Assume we used 0.1 BTC to open a short contract when bitcoin was trading at USD 40,000. Please note that with 100x leverage, 0.1 BTC can open a contract worth 10 BTC.
If the price of bitcoin dropped to USD 35,000.The profit will be (USD 40,000 - USD 35,000) * 10 BTC/USD 35,000 *100% = 1.43 BTC.
And if the price drops further to USD 30,000? The profit will be (USD 40,000 - USD 30,000) * 10 BTC/USD 30,000 *100% = 3.33 BTC.
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