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Bitcoin price collapse driven by MtGox fears but analysts stand by prediction of record before 2022

·3-min read
The price of bitcoin peaked above $68,000 on 10 November, 2021 (Getty Images)
The price of bitcoin peaked above $68,000 on 10 November, 2021 (Getty Images)

Bitcoin is down more than $10,000 from the the record high it achieved earlier this month, and continues to slide steadily in price from its peak above $68,000 without meeting any significant resistance.

There does not appear to be any single cause for the price drop, with analysts citing several reasons for the slump.

One of the simplest explanations is that long-term investors are skimming off profits from their holdings, which typically happens after bitcoin hits an all-time high.

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There is also investor uncertainty surrounding the US infrastructure bill, which could see companies subjected to stricter rules surrounding the holding of cryptocurrencies.

Crypto market analyst Simon Peters, who works for the online trading platform eToro, believes the recently implemented Taproot upgrade to the bitcoin blockchain could add to the sense of uncertainty, despite the update improving the speed, cost and security of BTC transactions.

“Perhaps the most important upgrade in the past four years for the network, Taproot was meant to streamline the cryptoassets transactions,” Mr Peters said. “Upgrades of this nature can cause short-term uncertainty as investors hold fire to see what will happen to the network.”

Another thread of doubt for investors has been drawn from fears that creditors of the defunct Mt Gox exchange could finally liquidate their payments – seven years after the cryptocurrency exchange collapsed.

Trustee Nobuaki Kobayashi confirmed last week that 141,000 BTC ($8 billion) under custody would soon be distributed among those impacted by the Mt Gox fiasco.

Data from blockchain market intelligence firm Glassnode suggests that more than three quarters of the 18.8 million bitcoins in circulation are actually illiquid. This means the MtGox coins represent more than 3 per cent of the 4.2m bitcoins in constant circulation. If all of them were to be cashed in at once it would cause the price to crash, at least over the short term.

Whether these latest losses translate into a longer term bear market has divided analysts, with some pointing to similar downturns in 2013 and 2017 that came at the end of record-breaking market cycles.

Those positive about bitcoin’s direction believe the continued spread of adoption that has pushed cryptocurrency more firmly into the mainstream in 2021 will prevent such severe price corrections from happening again.

Major corporations like Tesla and MicroStrategy continue to plough there cash reserves into bitcoin, while several countries look set to join El Salvador by introducing bitcoin as legal tender. Some believe the bull run is far from over and stick by their prediction for a new all-time high to be reached either before the end of 2021 or in early 2022.

Currently trading at around $57,000, if a piece of positive news could push bitcoin back above the $60,000 mark it could potentially break the current downtrend, according to Marcus Sotiriou, a sales trader at the UK-based digital asset broker GlobalBlock.

“If bitcoin can break above the $60,000 level that would confirm a double bottom pattern which is a bullish signal and could result in bitcoin resuming its uptrend in the short term to new all-time-highs,” Mr Sotiriou said.

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