For the first time in its history, Bitcoin (BTC) suffered losses for seven consecutive weeks. This is due to a downturn in major markets, stricter crypto regulations, a decline in retail interest and systemic risks in the crypto space, data shows.
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Bitcoin approached $47,000 in mid-March in a multi-week surge before falling to $37,000 from its all-time high of nearly $69,000 in November. Since then, the value has continued to fall each week and could drop as low as $20,000 if current market conditions persist.
Bitcoin, the world's largest cryptocurrency by market capitalization, has long been positioned as a hedge against inflation, or an investment designed to protect the declining purchasing power of currencies or other assets.
However, this has not happened so far, as Bitcoin is highly correlated with global markets and has traded much like a risky tech stock in recent months. Some analysts believe investors are selling Bitcoin as the price rises.
"In our view, the trend of selling cryptocurrencies on the upside remains. The gloomy outlook for U.S. monetary policy, where there is still no light at the end of the tunnel with interest rate hikes, is contributing to the bear market," FxPro market analyst Alex Kuptsikevich shared in an email.
"We do not expect the bear market to abate in the coming weeks. In our view, sentiment will not change until the price approaches 2018 highs near $19,600," Kuptsikevich added.
Bitcoin fell to a low of $24,000 last week when the stable-value tether (USDT) briefly lost its parity with the U.S. dollar. Investor sentiment at that point had already been affected by the implosion of terra's LUNA and its stable coin, terraUSD (UST).
Inflation fears affect bitcoin prices
Inflation fears have contributed to bitcoin's decline in recent weeks. Earlier this year, the Federal Reserve raised interest rates to the highest level since 2000 to tighten monetary policy after spending $2 trillion on stimulus in recent years.
In April, analysts at Goldman Sachs commented in a note that the Fed's aggressive measures to control inflation could trigger a recession. The investment bank estimated the likelihood of an economic contraction, a phase of the business cycle in which the economy as a whole contracts, at about 35 percent over the next two years.
Goldman Chief Executive Officer Lloyd Blankfein reiterated that assessment over the weekend, saying the U.S. economy is "very, very much at risk." Such an environment could lead to a decline in U.S. equities, which could also impact Bitcoin and lead to further selling in the coming weeks if the current correlation continues.
The risks of a massive sell-off may already be emerging. Last week, Grayscale Bitcoin Trust (GBTC), the world's largest Bitcoin (BTC) fund with $18.3 billion in assets, widened its market discount to an all-time low of 30.79%, as reported. The discount could be seen as a bearish indicator, as it could point to waning trader interest in Bitcoin.
GBTC is currently one of the only ways for stock traders in the U.S. to participate in Bitcoin's price movements without having to buy the actual cryptocurrency (Grayscale's parent company, Digital Currency Group, also owns CoinDesk, which operates as a separate subsidiary).
CoinGecko data shows that bitcoin remains below the fundamental support level of $30,000 at the time of this writing.
This article was translated by Marina Lammertyn.