Bitcoin has been trending down for five days now. Another piece of bad news came Wednesday, as the People’s Bank of China said digital tokens can’t be used as a form of payment. After the announcement, both BTC and ETH saw a 5% drop.
The price of bitcoin has already dropped over 35% from $56,000 to $41,000. This is one of the fastest top-to-bottom retracements the cryptocurrency has seen in the past year and is reminiscent of the March 2020 crash that saw it lose over 50% of its value.
On CNBC, ‘Chartmaster’ Carter Worth said that BTC could drop to $29,000. According to Worth, there have been 11 over 35% corrections in the history of the cryptocurrency and 55% drops usually followed those. If history repeats itself, we could see the price of BTC test the $29,000 support.
Another bearish sign is the inflows spike of Bitcoin moving to Binance. In its weekly note, Glassnode explained that the increased inflows could indicate new market entrants are panic-selling their coins and that investors are rotating into other cryptocurrencies.
Peter Brandt, a popular analyst that predicted the 2018 bear market bottom, tweeted that Bitcoin’s recent price moves are showing a structure similar to those seen in 2018.
The panic sell-off could largely be attributed to Tesla CEO Elon Musk, who announced that Tesla would stop accepting Bitcoin as a payment method over environmental concerns. However, many analysts and researchers have pointed out that Bitcoin mining consumes less energy than traditional banking. Musk’s changed stance towards bitcoin, combined with a pandemic-induced economic setback, is causing fear among investors.
Bitcoin could risk dropping further in the near term, and many investors are starting to sell their coins. However, selling is not the only option in a downward market. With futures trading, traders can earn a profit by shorting crypto assets.
Let’s see how we can benefit from bitcoin’s price drop:
Assume we use 1 BTC to open a short position when bitcoin was trading at $11,000. Please note that with 100x leverage, 1 BTC is enough to open a position worth 100 BTC.
One day later, the price of bitcoin drops to $10,500. The profit would be ($11,000 – $10,500) * 100 BTC/$10,500 *100% = 4.76 BTC, making the ROI 476%.
Then the price of bitcoin gets hit again and drops to $10,000. The profit would be ($11,000 – $10,000) * 100 BTC/$10,000 *100% = 10 BTC, making the ROI 1000%.
(Photo : BitFinanzas)