Bitcoin (BTC) is nearing $40,000 this week as “Dogefather” Elon Musk deals out pure pain to hodlers — what’s next?
After a traumatic weekend for many crypto investors, Monday is setting the stage for the next chapter in the wild 2021 bull market.
Cointlegraph takes a look at five factors which could shape what Bitcoin and altcoins do next.
Musk tweet hits key Bitcoin technical level
It’s all about one man yet again this week: Elon Musk. In characteristic fashion, the Tesla and SpaceX CEO caused uproar on Twitter when he came out bearish on Bitcoin.
BTC/USD sold off immediately on news that Tesla was halting BTC payments for its products, but for Musk, this was not enough.
Further tweets over the weekend, including criticism of Bitcoin’s decentralization and how he “believes in crypto,” added fuel to the fire.
It was a hint that Tesla may already be planning to sell its holdings, however, that caused the most misery. Bitcoin fell to near $42,000, retesting this previous all-time high level before steadying as Musk stressed that no sale had occurred.
“To clarify speculation, Tesla has not sold any Bitcoin,” he wrote on Monday.
BTC/USD chart with Twitter events highlighted. Source: Twitter
With Musk versus the cryptocurrency community beginning to look like a full on war, Bitcoin is thus unsurprisingly volatile as all eyes remain on the Twitter battlefield.
At the time of writing, Bitcoin was trading at around $44,800, still down 8.7% over the past 24 hours.
As analyst Alex Krueger noted, however, the clarifitication tweet may be unwittingly acting as a local bottom signal, as Musk posted it just as BTC/USD hit a key 61.8 Fibonacci retracement level.
“Elon Musk must be an outstanding technical analyst,” he commented.
“His ‘Tesla has not sold any Bitcoin’ tweet was posted exactly at Bitcoin’s key technical level, the 61.8 fib ($42,845).”
BTC dominance falls below 40%
Musk’s activities have had a detrimental impact on Bitcoin and altcoins alike.
Despite continuing to praise Dogecoin (DOGE), even the meme-based token failed to avoid losses over the weekend, with the majority of large-cap altcoins following Bitcoin down.
There were some less significant losses, such as those of Cardano (ADA), which on Saturday was still bucking the overall downtrend to even post new all-time highs.
In terms of bearishness, however, nothing shows how much the average Bitcoin holder is suffering like market dominance.
On Monday, Bitcoin’s overall market cap share dipped below 40% for the first time since June 2018.
Bitcoin market cap dominance chart. Source: CoinMarketCap
Already on the way out, dominance was dealt a significant blow thanks to the recent Bitcoin price pressure, while alts such as Ether (ETH) benefitted.
“The Bitcoin dominance is still falling,” popular Twitter trader The Moon summarized over the weekend.
“The alt season is not over yet. But my gut feeling is that the end is near!”
Bitcoin fundamentals provide calm
For all the nerveracking price action, meanwhile, nothing provides a bullish counterpoint to the current Bitcoin narrative than its network fundamentals.
Even after its $42,000 dip, Bitcoin is more attractive than ever for miners, and its network security is therefore also more solid than ever before.
As Cointelegraph reported, both hash rate and difficulty have staged a miraculous recovery in recent weeks, reclaiming all-time highs after a miner washout caused its own brief price crash.
The weekend proved to be no different, with weekly average hash rate topping 180 exahashes per second (EH/s) for the first time.
Bitcoin 7-day average hash rate chart. Source: Blockchain
Difficulty is still on track to increase by over 10% at the next automated readjustment in 11 days’ time. The previous readjustment on May 14, at 21.5%, was the largest positive shift since June 2014.
“Bitcoin’s mining difficulty hitting an all-time high just after tesla’s announcement is a chef’s kiss,” Alex Thorn, head of firmwide research at crypto merchant bank Galaxy Digital, said last week.
Dollar bounces at support
Taking a break for crypto-specific triggers, the wider macro picture may yet provide some inspiration for price trajectory.
After plunging late last week, the strength of the U.S. dollar is returning. The U.S. dollar currency index (DXY) is bouncing off familiar support — surges in its strength tends to provide teething problems for BTC/USD.
U.S. dollar currency index (DXY) 1-day candle chart. Source: Tradingview
At the same time, stocks are bullish in China but performing averagely in Europe and the U.S. Coronavirus, with localized peaks in some jurisdictions but fewer cases in others, joins the melting pot.
Among traders, however, it is inflation that is a key issue. A broad global rebound from the time of lockdowns and other restrictions creates problems for those attempting to engineer it — specifically, the U.S. Federal Reserve and other central banks.
“The global economic recovery is well under way; that’s what’s fueling the inflation fears,” Olivier d’Assier, Qontigo head of APAC applied research, told Bloomberg.
After stock markets’ rip roaring year, he added, appetite for profit taking will be understandably increasing.
Bitcoin still beats its last bull market
Is it 2013 or 2017 in terms of the Bitcoin bull market?
Among the industry’s best-known names, there is no hint of bearishness — all that remains to do is analyze the nature of the current retracement and compare it to years past.
This week, stock-to-flow creator PlanB notes that for all the Musk drama, Bitcoin is still performing better than during its 2017 run to $20,000. This despite the $42,000 dip officially being Bitcoin’s biggest this bull cycle and since the cross-asset crash of March 2020.
“Today feels like 2017 bull market (esp. during the fork war),” he tweeted on Monday, invoking memories of the birth of Bitcoin Cash (BCH).
“It’s not a straight line to the next ATH, but a lot of volatility (multiple -30% dips). HODL.”
BTC/USD stock-to-flow chart as of May 17, 2021. Source: Digitalik
Calling for calm and zooming out is a key feature among seasoned Bitcoiners. As Cointelegraph reported last week, stock-to-flow remains unviolated by Musk or any other episode of downward volatility.
An accompanying survey meanwhile revealed that a majority of 35,000 respondents believe that BTC/USD will still hit $100,000 this year.
