By Yasin Ebrahim
Investing.com – Bitcoin slumped Tuesday, and some warn a breach below $30,000 could trigger “mass capitulation” as negative noise is poised to continue ahead of the G7 meeting Friday, but amidst the selling, longer-term holders continue to hold the line.
BTC/USD fell 7.75% to $32,882, to trade close to its low of $30,261.7 seen May 19.
“Any positive news is literally eclipsed by negative noise,” Amber Ghaddar, co-founder of AllianceBlock, said in an email to Investing.com on Tuesday. “There’s no doubt that more negative news will lead to a continued selloff and perhaps mass capitulation of new entrants who have been realizing losses throughout May if prices cross the $29,000 level. The good news is that long term holders have not moved much and we are seeing them starting to accumulate what are now considered undervalued bitcoins.”
Tuesday’s latest selloff was largely attributed to authorities finding a chink in bitcoin’s armor, or blockchain, as the FBI recovered the bulk of the BTC ransom paid to cyber criminals who attacked the Colonial Pipeline. This has led some to believe that the bitcoin network was hacked, raising concerns about the security of Bitcoin, but this is “clearly not the case,” according to Ghaddar.
“People tend to forget that the bitcoin network is transparent and with the right tools it is quite easy to trace transactions. The question remains whether the wallet was on an exchange or whether the FBI has 'ironically' hacked the computer of the hackers,” she added.
While it remains unclear how the FBI was able to access the private key, or password, to recoup the funds from the hackers’ bitcoin wallet, some have speculated that given much of the internet infrastructure is based in the U.S., law enforcement authorities may have had search warrants that enabled them to access the emails of the cyber criminals who carried out the attack.
Beyond the seemingly unfounded questions over Bitcoin’s security, the fundamentals show the market remains fragile as the hallmarks of a bull market are fading fast.
Activity on the blockchain has slowed, transactions volumes are dwindling and fees in decline as the usual fight among miners to mine upcoming blocks on the blockchain is murky at best.
“During the recent sell-off, the Bitcoin network experienced a reduction in active addresses, down 18% from the recent highs to around 0.94M. This fall is around half the reduction seen in 2017, indicating that whilst activity has slowed, more demand exists than after previous cycle macro tops (or perhaps there is further to go...),” Glassnode said in its weekly on-chain report.
The unhealthy signals stemming from the underlying network that powers bitcoin has not only fleeced the popular cryptocurrency of its remaining swagger, but raised questions on whether it’s time to hoist the white flag on the crypto bull market.
“Most on-chain indicators (indicators that look at the network activity and can be compared to fundamentals) have reset to levels last seen in late 2020/ early 2021 and some indicate that traders are uncertain on whether the current trend is bullish or bearish,” Ghaddard said.
The negative noise around crypto including bitcoin is poised to continue in the coming days as the G7 kicks off its annual symposium, in which cryptos are likely to be thematic – and not in a good way.
“The microscope on cryptocurrency is sure to be a hot topic around the G7 summit as global figureheads have been giving their take on the industry. Regulatory officials from the Office of the Comptroller of the Currency to the Central Bank of Ireland and Sweden’s Central Bank have been chiming in on the need for additional regulatory perimeters and the lack thereof posing a significant risk to investors,” David Wachsman, CEO and Founder of Wachsman, said in an email to Investing.com on Tuesday.
But the talk of a crackdown on cryptos from regulators is perhaps overdone as illicit activity accounted for "less than 1% of total transaction volumes according to chainalysis recent report and this should translate to $64.5 billion for 2020, while the UN estimates that 2 to 5% of global GDP is linked to the illicit activity which amounts to $1.7 trillion to $4.2 trillion, Ghaddar said.
"So it's clear that illicit activity using crypto is much smaller than using cash and it is ludicrous to put crypto under the spotlight,” Ghaddar added. “Ironically as blockchains are transparent and immutable, it is much easier to track transactions in the digital world than in the real world.”
Looking ahead, Wachsman cautioned that while there was an “increasing the likelihood for a temporary slide for bitcoin south of $30,000 USD … the slide should be short-lived and a welcome correction for the institutional players backing blockchain-based assets for the long haul.”