After posting gains for nearly two weeks, bitcoin (BTC) eventually ended its streak and closed in the red. BTC price declined from a high of $21,564 on Jan. 18 to an intra-day low of $20,708, a drop of 2.7%.
This downward movement in the crypto markets was likely due to the abrupt closure of crypto exchange Bitzlato following the arrest of its founder in a $700 million money laundering scheme. As a result, the bitcoin price dropped below its resistance level of $21,480, indicating that short-term traders booked profits during the market downturn.
In light of this recent slump, what direction could bitcoin take? Let’s assess the looming trends and how they could influence price action in the coming days.
The slump in BTC supply on centralized exchanges
The latest data published by crypto analytic company, Santiment, on Jan. 18 has revealed that the supply of bitcoin on centralized crypto exchanges has decreased significantly over the past year, dropping from 11.85% to 6.65%.
Kraken was most affected of all the exchanges, with its BTC balance decreasing by 59%, Coinbase by 33%, Bitfinex and KuCoin by 32% each, Binance by 25%, and Bitstamp by 23%.
The lower the quantity of bitcoin on crypto exchanges, the less the selling pressure and the stronger the market. Hence, this trend is a major milestone, as it indicates a growing interest in self-custody, with investors increasingly viewing Bitcoin as a long-term investment.
US crackdown and growing concerns
The cryptocurrency industry and regulators have long strained relationships, with each side often misunderstanding or distrusting the other.
On Jan. 18, the US Department of Justice (DOJ) took a hard stance against the sector by shutting down the Russian exchange Bitzlato for alleged money laundering linked to Hydra Market. Hydra is a so-called “illicit online marketplace for narcotics, stolen financial information, fraudulent identification documents, and money laundering services” that US and German authorities had already shut down in April 2022.
The initial announcement from the DOJ sent shockwaves through the crypto market, with participants fearing the worst. The news saw the market briefly dip as investors reacted to the news.
The current market conditions are delicate, and if the situation worsens, it could significantly impact how the market behaves in the coming days.
Economic concerns and layoffs
At the Davos World Economic Forum, participants and business leaders painted a dismal picture of the US and global economies in 2023. Experts unanimously concluded that inflation and the cost of living crisis are inextricably linked, and that managing inflation is essential for providing relief from the financial strain in the future.
Moreover, large technology institutions such as Ethereum development company ConsenSys recently announced a global 11% workforce reduction – are adding to the tension by laying off personnel. These events have amplified the stress on the crypto asset market.
Looking ahead: where’s bitcoin going next?
As of Jan. 19, BTC was trading at $20,790 with a market capitalization of more than $400 billion, and a 24-hour trading volume of $30 billion.
Amid all the volatility, Rekt Capital, an independent market analyst, believes that bitcoin may have already reached its macro bottom, with a ‘Death Cross’ level pointing to a bottom of $23,500.
Data suggests that BTC’s price has fallen below its 200-week moving average – a signal that, if history is anything to go by, could point to the bottom of its current downtrend.
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