What happens if Bitcoin falls below $20,000?

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As bearish sentiment floods financial markets, experts wonder if Bitcoin will dip below $20,000 and what might happen if it did.

Bitcoinnow firmly in a bear market, is currently trading just above $22,000, a remarkable drop from its all-time high near $69,000 – and a drop that most observers attribute to deteriorating macro conditions -economic, such as rising inflation and interest rates.

At the moment, all eyes are on the $20,000 price line, not only because it is an important psychological resistance level, but also because it represents the peak of the last run. bitcoin bullish in 2017.

In previous bear markets, Bitcoin has never fallen below the price marked by the peak of the previous bull run. The difference this time, however, is that Bitcoin has much less distance to travel to cross this mark.

Swan Bitcoin analyst Sam Callahan believes that based on the experience of previous bear markets, it is possible for Bitcoin to fall more than 80% from its all-time high, as it did in December. 2018 when it fell to just over $3,000. This would mean that Bitcoin would fall as low as $13,800 this cycle.

But Callahan isn’t so worried either if that’s the case.

“It’s important to note that Bitcoin’s investor base is very different and more sophisticated compared to previous bear markets,” Callahan said. “If Bitcoin were to fall below $20,000, I believe we would see substantial buying pressure at these reduced price levels as Bitcoin’s long-term value proposition remains intact.”

Yuya Hasegawa, cryptocurrency market analyst for Japanese crypto exchange Bitbank, agrees with this sentiment.

Last month, Hasegawa said Decrypt that Bitcoin could dive like as low as $12,200 during this bear market. But now his outlook is more optimistic.

“I think Bitcoin could temporarily drop below $20,000, but it will likely quickly recover to the level around it,” Hasegawa said. Decrypt by email.

Not everyone is so optimistic.

Marcus Sotiriou, an analyst at UK cryptocurrency firm Global Block, believes there could be more downside if Bitcoin falls below the $20,000 mark. Sotiriou highlighted the controversy surrounding the crypto lending company Celsiusthe possibility that the company is insolvent and the apparent liquidity crisis that forced it to suspend all user withdrawals earlier this week.

Celsius [is] in big trouble,” he said. Decrypt via email, “what if the whales that bet on bitcoin and Ethereum to be liquidated, this would result in a further decline.

“I think many are worried that a liquidation cascade will occur with margin calls like Celsius, and now having a liquidation price of around $17,000 on their BTC position,” Sotiriou said.

Strength liquidations occur when investors have to unexpectedly and involuntarily close positions in Bitcoin derivatives (like futures and options) after their accounts have reached insufficient collateral to maintain those positions. This type of forced selling puts additional downward pressure on the price of Bitcoin, which can then drive the price further down and, in turn, cause more liquidations, hence the “waterfall”.

Arthur Hayesformer CEO of BitMEX, also highlighted the potential for this type of risk in a Yesterday’s Twitter feed. Pointing to the crypto derivatives market, Hayes noted that most open interest — the number of futures and options to settle — is currently $20,000 for Bitcoin and $1,000 for Ethereum.

The closer the market gets to these levels, the more traders with open positions will need to sell their crypto into the spot market to cover their positions, Hayes explained.

And if those levels break, “we can expect massive selling pressure” in the market, Hayes said.

How bad would that get? If that happens, Hayes told crypto traders, “you might as well shut down your computer. [because] your cards will be useless for a while.

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment or other advice.

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