After a 3-year drought, crypto bulls were once again basking in the limelight as bitcoin and its altcoin peers went on a parabolic rally beginning late 2020 that saw them take out fresh all-time highs.
Bitcoin hit an all-time high of nearly $65,000 in April, and even Wall Street got carried away by the hype, with Guggenheim Globals CIO’s Scott Minerd calling a $400K price target for bitcoin.
But alas, the good times were not to last: Bitcoin has crashed spectacularly since May, losing nearly 50% in the space of two months in one of its biggest corrections by the cryptocurrency in recent years.
The market crashed in mid-May after Beijing started cracking down on the space, curbing bitcoin mining due to concerns of excess speculation and warning financial institutions against offering crypto services.
Things quickly went to the dogs after the Department of Justice seized $2.3 million in bitcoin in early June as part of its investigation into a ransomware attack that shut down the Colonial Pipeline’s gas pipeline, the nation’s largest. The DoJ seizure helped fuel concerns that U.S. officials could ramp up their crypto oversight and threw a monkey wrench into one of bitcoin’s supposed forté–non-traceability.
The DOJ revealed that it seized 63.7 bitcoins, worth approximately $2.3 million, from online hacking ring DarkSide by reviewing bitcoin’s public ledger, locating the transaction and using a private key to access the tokens. It remains unclear what methods the DOJ employed to obtain the private key, but experts have suggested that Fed officials effectively hacked the hackers in an unprecedented show of government intervention in the crypto space.
The developments rocked the markets, with bitcoin, ether and binance coin crashing nearly 15% in a single day.
The latest developments have effectively wiped out the warm glow of institutional acceptance that had helped fuel the mad bitcoin rally.
The leading cryptocurrency had been enjoying growing acceptance by Wall Street and some of the world’s biggest and most recognizable institutions and companies including Visa Inc. (NYSE:V), Square Inc. (NYSE:SQ), PayPal Holdings (NASDAQ:PYPL) and Tesla Inc.(NASDAQ:TSLA).
The public listing of the biggest cryptocurrency exchange, Coinbase Inc. (NASDAQ:COIN), in mid-April helped to lend further legitimacy to cryptocurrencies as a mainstream financial instrument.
Bitcoin has managed to hold above the psychologically important level of $30,000 through all the turmoil, but has failed to convince anyone that it has any legs left after the mauling.
BTC is currently trading at $34,636. Slightly above the first major support level at $34,451, but needs to break through the $35,201 pivot to bring the first major resistance level at $36,025 into play. However, this requires broader market support, and barring a broad-based crypto rebound, major resistance around $35,000 is likely to leave the crypto short of the first major resistance level thus capping any further upside.
In fact, failure to move back through the $35,201 pivot could see bitcoin plunge towards the second major support level at $33,627.
The potential bear trap becomes even more precarious with the Grayscale Bitcoin Trust (GBTC) about to dump bitcoin worth $1.5 billion in the markets on July 18.
More government intervention
The mid-term bitcoin outlook remains equally murky, with more government intervention anticipated.
A couple of senate members on the Intelligence Committee have proposed to increase measures to regulate and trace cryptocurrencies.
“The only way you can begin to get on top of the pervasive ransomware problem is to develop a pattern,” Sen. Roy Blunt (R-Mo.) told NBC News’ Meet the Press, noting that cryptos like bitcoin are the “ransom payment of choice” for hackers.
Experts in the past have warned that heightened regulation could easily stunt the crypto markets, and the past few months have clearly proven that.