Crypto Frontline

After managing to rebound higher for four consecutive weeks in a row, Bitcoin is once again beginning to show signs of weakness. Following a mild start of the week, due to the Easter holiday, the price action points to an increased selling pressure that had already driven the price below the channel formation we’ve talked about in our last weekly crypto analysis.

There had been no significant news released in the past 24 hours, which means the breakout is so far purely technical and may trigger additional selling as the week continues to unfold. The price is trading around $6,800 on the Coinbase exchange, below the $7,000 area where it stalled recently.

Weakness as the halving approaches?

May 11^th, 2020, is the estimated date when the next Bitcoin halving will take place. In about 26 days, 22 hours, and 56 minutes, the number of BTC tokens entering circulation every 10 minutes (a.k.a. block reward) will be cut into half, to 6.25 per block from 12.5. This is the third important milestone for the largest cryptocurrency and could have once again a great influence on the price developments for the next 2 years.

Viewed from a longer-term perspective, the halving contributes to a sudden drop in Bitcoin supply, and as long as the demand for Bitcoin will remain high, the price could start a new bull run. However, history had shown that the period around the halving is very volatile and could see the price weakening meaningfully before it starts to trend higher. Volatility had been high in March and we should expect to see another strong wave before things start to settle.

Global risk sentiment – a major influence on Bitcoin?

As opposed to 2012 or 2016, when prior halvings had taken place, this time global financial markets have to deal with a global pandemic that will have a major impact on valuations. A recent Binance Research had pointed to record correlation between Bitcoin and some of the popular stock markets, suggesting the low appetite for risk assets had spread to cryptocurrencies, as well.

The appetite for risk does have an influence on the demand for Bitcoin and as a result, the next bull run could be postponed a little longer. Regarding the recent price weakness, it confirms selling interest remains elevated and a W-shaped bottom should not be ruled out of the equation. As long as the price won’t break above $7,500 more weakness should prevail in the following days or weeks.