Cryptocurrency correction to last into 3Q

Demand would remain low as investors take a wait-and-see approach by China-based miners


CRYPTOCURRENCY investors may see a decline in their investments as the price of bitcoin and other alternative coins (altcoins) could remain weak until September after China’s moves to block cryptocurrency mining to support its green policy objectives.

Tokenize Technology (M) Sdn Bhd founder and chief technology officer Hong Qi Yu said demand would remain low as investors take a wait and see approach on the next course of action by cryptocurrency miners based in China.

Reports suggest some China miners have relocated their operations to Kazakhstan and Texas, as well as the other part of the US, which have lesser red tape for mining activity and power supply.

“I believe while this process is taking place, for the next one to three months, the price of cryptocurrency might stagnant at current range and demand will remain low until price manages to break out to the upside,” Hong told The Malaysian Reserve (TMR) in a text reply.

The shutdown ordered by Beijing has had the effect of reducing bitcoin’s hashrate by about 25% in the last week of second quarter (2Q) 2021.

According to global cryptocurrency data collector CoinGecko, bitcoin price peaked on April 14, at US$63,576 (RM268,513) after gaining some 900% year-on-year, on the back of interest from multiple institutional investors and big-name high net worth individuals like Elon Musk of Tesla Inc and Space Exploration Technologies Corp.

The price of the leading currency, which dominated half of the over 8,000 altcoins in terms of market capitalisation, has halved to around US$30,000 with the total market capitalisation also halved to US$1.3 trillion compared to the all-time high of US$2.5 trillion in May.

Last month, Beijing came down hard on crypto mining by shuttering operations across at least five provinces or regions that are rich in either coal or hydropower, Chinese daily Global Times reported.

According to the report, many bitcoin mines in Southwest China’s Sichuan Province — one of China’s largest cryptocurrency mining bases — were closed last month, after Chinese authorities ordered a halt to mining in the region amid an intensified nationwide crackdown against cryptocurrency mining.

The ban also means more than 90% of China’s bitcoin mining capacity is estimated to be shut down, at least for the short term, as regulators in other key mining hubs in China’s north and southwest regions have taken similar harsh steps.

The bitcoin hashrate — the total computational power used to secure transactions on the blockchain — has dropped to its lowest level since November amid concerns over the network’s energy consumption.

CoinGecko COO Bobby Ong believed the demand for cryptocurrency would be dependent on government policy, despite the fact digital assets are built decentralised in nature.

“It’s hard to talk about prices as it’s mostly affected by US Federal Reserve’s (Fed) monetary policy. A key indicator to watch is inflation expectation and whether the Fed will taper off stimulus. This will affect risk assets such as crypto and tech stocks.

“So far only China has stopped miners from operating. This has the effect of reducing bitcoin’s hashrate by about 25% in the last week of 2Q,” he told TMR.

Price supportive comments last week from Musk and Square Inc CEO Jack Dorsey saw price rebound with bitcoin trading at US$34,500 levels yesterday after testing support levels last week.

According to Luno Market Analysis published recently, bitcoin’s momentum seemed to be heavily tilting in favour of the bears last week, with the next critical support level sitting at US$28,500.

“This level acted as support earlier in this consolidation phase and also during the correction at the end of January.

“Another level worth paying attention to is the yearly bottom from Jan 4, at around US$27,800,” the digital asset exchange noted.

“If bitcoin fails to maintain these support levels, there’s not much technical support down towards the 2017 ATH levels slightly below US$20,000,” Luno warned.

At this juncture, Hong recommended investors to focus on buying at discount.

“Buyers are reminded to only allocate one-third of their full entry at the current price. Based on the 2013 price slump, it took almost 196 days and a 69% price correction from the top/all-time high,” Hong explained.

He added this would serve as a good entry setup benchmark to the investors on how to allocate their funds if they are keen to take a position in this short-term crypto bear market.

“It is very wise to buy at this market correction as it gives value to money, limited downside but unlimited upside.”