Bitcoin Tumbles to $40,000: Analyzing 3 Possible Futures
On December 11th morning, the leading cryptocurrency saw an 8% drop, hitting a low of $40,222 the following day.
This dip in BTC was accompanied by a spike in trading volume, with figures topping 10,000 BTC per hour on multiple exchanges. As Bitcoin has not yet bounced back from this decline, the crypto community is debating whether this signals the end of its bullish trend and the beginning of a correction.
We'll dive deep into the current market scenario for BTC and explore 3 likely scenarios for the future course of this dominant cryptocurrency.
Why did Bitcoin drop?
The principal cryptocurrency experienced a notable ascent since early 2023. Starting the year at $16,540, BTC soared from $26,000 to $44,000 between October 15th and December 11th, marking an increase of nearly 70% in just two months.
Growth trajectory of BTC from October to December 2023 (tradingview.com)
This steady rise over two months happened with minimal pullbacks. A minor dip occurred in mid-November, but it was a blip in the overall upward trend, without BTC retesting the $32,000 level for a continued rise.
No major economic news (positive or negative) impacted the market this month. Some experts believe that the potential approval of a Bitcoin ETF by the SEC could be driving BTC's rise, but with the regulator postponing the decision for six months, it's uncertain if this was the cause.
The activity of BTC moving in and out of exchanges hasn't shown significant fluctuations, but there's a gradual increase in Bitcoin balances on centralized exchanges: over 30,000 BTC was deposited on these platforms in December, and large sell-offs by market players could have a bearing on the coin's price.
Movement of BTC between exchanges and wallets (Coinglass.com)
Bitcoin balances on centralized exchanges (Coinglass.com)
With this context, let's look at 3 potential directions in which BTC's market dynamics could head.
Scenario 1: Upward Momentum Continues
BTC's chart still shows an upward trend. It's crucial for the buyers to hold the $40,000 level, which has been tested twice already. If they succeed, the next hurdle is at the $43,000 seller's level, packed with sell orders.
The breakthrough at $43,000 needs to happen with significant trading volumes, leading to an impulsive increase in BTC. This would confirm the buyers' strength and make setting new annual highs the next target. The next likely range for this upward move would be between $48,000 and $52,000.
Possible BTC trajectory in case of continued growth (tradingview.com)
It's also possible that BTC might trade within the $40,000-$43,000 range for some time, allowing altcoins to gain momentum.
Scenario 2: A Deep Correction
The levels of $30,000 and $35,000 have not been retested in any correction so far, suggesting that BTC's fall could extend to these points. This becomes likely if sellers push the price below $40,000.
Buyers might then step in around the support range of $35,600-$37,000, or even lower, in the $32,000-$33,700 zone. Such a correction could heavily impact altcoins, potentially causing a 70-80% drop in some. However, for the long-term upward trend to sustain, such corrections are essential and indicative of the market's readiness for further growth.
Expected BTC behavior in a deep correction scenario (tradingview.com)
The growth target for BTC would still be the $48,000-$52,000 range, but if accumulation occurs substantially below $35,000, BTC's growth could surpass $52,000.
Scenario 3. Continued Downtrend?
Looking at the weekly chart, BTC appears to be in a longer-term downtrend. After peaking at $69,000, BTC has consistently failed to approach this high in the past two years, with several new lows.
The rise in 2023 might just be a minor correction within this broader downtrend. In this case, BTC might further descend and stabilize below $30,000, potentially opening the path to $20,000.
While this scenario seems less likely at the moment, certain factors support it. First, the ongoing economic recession in traditional sectors could intensify, evident from the slow pace of inflation reduction and unchanging interest rates.
BTC's potential path in a global downtrend (tradingview.com)
Not to mention, unresolved geopolitical tensions globally pose additional threats to both economic and social sectors. This negative scenario could be negated if BTC's price consolidates above the $48,000 mark, the previous price peak set in early 2022.
What's the Strategy Now?
Choosing the optimal investment strategy is challenging in a market that might either continue its ascent or undergo a deep correction. In the long run, BTC's limited emission, halving events, and USD inflation could significantly boost its value, potentially surpassing historical highs in the next decade.
Regarding current investment strategies, our website features an article on 5 methods to mitigate risks during BTC corrections, particularly relevant in the current market situation.
