How Far Could Bitcoin’s Price Decline?

Bitcoin experienced a significant 19% drop in August, making it the largest monthly decline for 2024 and the most substantial since June 2022. This price slump has raised concerns among investors and market analysts about how low Bitcoin could go.

Impact of Bank of Japan’s Interest Rate Hike

Bitcoin (BTC) fell below $50,000 following the Bank of Japan’s decision to raise its interest rate from 0% to 0.25%. This move had a ripple effect on the US stock market, as traders had been borrowing Japanese Yen at low-interest rates to invest in US assets. The shift in this borrowing paradigm directly impacted risk assets, including Bitcoin, leading to further price corrections.

Repeating the “Lower High” Trend

Bitcoin has been following a pattern of lower highs throughout 2024. The most recent lower high (LH3) occurred on July 29 when BTC briefly touched $70,000. This trend has consistently signaled bearish reversals, with Bitcoin now down 25% since LH3. The earlier lower highs in April and June 2024 led to significant corrections of 23% and 26%, respectively.

Key Support Levels for Bitcoin

Bitcoin’s recent flash crash took many by surprise. The cryptocurrency failed to maintain support levels at $60,000 and $57,000, ultimately falling below $50,000. As Bitcoin’s market structure forms a new lower-low pattern, Axel Adler Jr, a contributing analyst at CryptoQuant, noted that BTC has fallen below the moderate risk lower boundary of 9% from the average purchase price of active investors for the fifth time. According to Adler, the support level for this cohort is around $48,000.

Charles Edwards, founder of the Capriole Fund, suggests that Bitcoin should start retracing at its current range of around $52,000. However, if BTC fails to hold above $50,000, its next key support level lies around $44,000. The $40,000 range served as a consolidation zone from December 2023 to February 2024.

Defending BTC at $42,000

While some analysts believe that Bitcoin should bounce at $48,000 or $44,000, data from Intotheblock indicates that significant holders are preparing for a lower level. Around 6.39 million addresses currently hold 2.38 million BTC at an average price of $42,446. A retest of $42,446 would mean another 18% correction from its current market value, potentially causing further panic and affecting buyer confidence.

Technical Indicators and Potential Bidding Range

From a technical perspective, a bidding range between $44,000 and $48,000 appears logical. This range features a weekly order block formation that aligns with two other indicators. Therefore, Bitcoin’s price has a good chance of retesting the weekly 100-exponential moving average (100-EMA) within this range. The 0.5 Fibonacci line is also around this level at $44,672.

Conclusion

Bitcoin’s recent price movements have left investors and analysts speculating about its future. With key support levels identified and significant holders preparing for potential lower prices, the coming weeks will be crucial in determining Bitcoin’s trajectory. As always, market participants should stay informed and prepared for various scenarios in this ever-volatile market.