Slumping Bitcoin Stokes Conflicting Narratives That Bubble Is Either Shrinking or Popping

When fear is the main factor driving investors, they pile back into dollars, driving everything else from the S&P 500 to gold — and especially bitcoin — down.

So much for the argument that bitcoin is seen as a safe-haven investment by institutional or retail investors rather than a play to cash-in on crypto’s now-battered get-rich-quick reputation.

Well down from its all-time high of nearly $70,000, bitcoin of late has been struggling to keep its head above $40,000, with a growing drumbeat of predictions that bitcoin could crash down to $32,000 and possibly below that level, which was the bottom of the May to July 2021 crash.

With nearly every market — from equities and commodities to crypto — down in the wake of raising inflation fears, Fed Chairman Jerome Powell warning of more aggressive rate hikes, growing concern that Russia’s war in Ukraine could spread at least political tensions in Europe and China’s stock market crashing on growing COVID fears following the complete lockdown of Shanghai, it hardly seems surprising that bitcoin and all but a handful of the 50 largest cryptocurrencies are in the red.

But bitcoin was supposed to be different. For more than a year and a half, ever since it began skyrocketing in the fourth quarter of 2000, there has been a steady drumbeat of stories that “bitcoin is different.” Kind of like there was a steady drumbeat of stories during the late 1990s-2020 internet boom that a “new economy” had been created, leading investors to pump the sector so full of hot air that the inevitable bubble had to burst when the economy turned — or perhaps when sense returned.

Head above water

That strengthening dollar is bad news for bitcoin, cryptocurrency research firm Delphi Digital warned on April 14, saying “USD strength is one of the biggest headwinds for markets, including BTC and crypto.”

The dollar has been strengthening since around late June, with the U.S. dollar index (DXY) breaking the 100 mark in comparison to a basket of currencies, including the euro, yen and pound, for the first time in two years on April 12.

This was happening, Delphi added, as bitcoin “struggles to keep its head above” $40,000.

Earlier this morning (April 25), top crypto industry news source CoinDesk noted that predictions of a return to the low $30,000s are growing more common, with some of the most bearish predictions suggesting that bitcoin could retreat to $20,000. And the “Crypto Fear & Greed Index,” a widely followed measure of market sentiment, is at 23 out of 100 — well into the “extreme fear” category.

“I don’t remember this level of bearishness amongst contacts and Twitter, even back on cycle lows in January,” one fund manager told CoinDesk.

That sentiment is far from crypto’s only problem. Many cryptocurrency-related firms are down substantially, most notably Nasdaq-listed crypto exchange Coinbase, which is off more 50% since it went public a little more than a year ago — compared to bitcoin, which is down about 25% in that time. And many others, such as bitcoin mining firms, with three of the biggest down as much as two-thirds in the past year.

Perhaps just as worrying, crypto exchange trading volumes are down substantially this year  — and even during the November boom, when bitcoin reached its all-time-high, volumes were not close to what they were at the peak of the May boom.

Which suggests that as the get-rich-quick narrative seems to fade, retail investors are shying away.

Shrinking but strong

And yet, there are still far more bitcoin and crypto owners than there were one year ago. The PYMNTS U.S. Crypto Consumer study, released last week, found that crypto currency ownership is up to 23%, jumping from 16% in 2021 — an increase of more than 18 million Americans.

See also: 55% of Crypto Owners Purchased It as an Investment to Make Money

And exchange volumes — legitimate exchange volumes at any rate — are still five times what they were before bitcoin began its climb from $10,000 in November 2020.

So maybe a better narrative is that frequent crypto traders who impact the day-to-day price of bitcoin and other digital assets are running scared. But the actual bitcoin investors are holding firm.