Bitcoin is tumbling, but how far can it go?

The leading cryptocurrency has fallen over 5.7% over the past week. Today, it dropped below $57,000 as several wallets linked to defunct crypto exchange Mt. Gox made minor transactions. Persistent selling by the German government, today moving another $75 million of Bitcoin to exchanges, has also seemingly spooked investors.

“The short-term outlook is somewhat bearish, but not extremely so,” Basile Maire, co-founder of decentralized exchange D8X and former bank treasury specialist, told Decrypt.

Macroeconomic conditions and the uncertainty clouding U.S. elections is likely also playing a role in current bearish sentiment. The Federal Reserve yesterday said that though inflation in the U.S. market may be easing, it still remains well above its target rate, which could therefore impact the chances that the Fed lowers interests rates this year.

The Fed prolonging interest rate cuts is considered bearish for risk assets, such as Bitcoin, as investors are typically less likely to move their dollars into the market under high-rate conditions. Still, some analysts see signs that the pain may be short-lived.

Maire says the Bitcoin options market, based on July expirations, shows that few market participants believe the price of Bitcoin will drop below $50,000 this month. Options "cluster between $50,000 and $60,000, with more volume closer to $60,000,” Maire explained.

This means that those opening options contracts, which are used to bet on the future price of Bitcoin, believe it is more likely that Bitcoin will end the month close to $60,000 than anywhere else. Other analysts take a different view.

“Bitcoin is more likely to fall to $51,500 than rise to $65,800,” Alex Kuptsikevich, the FxPro senior market analyst, told Decrypt. Kuptsikevich identified the $50,000 market as the "February consolidation area," meaning the price point at which most Bitcoin buys were made back in February. He believes this could be Bitcoin's next stop.

Digital assets firm 10x Research echoed the sentiment suggesting that $60,000 was a key level for Bitcoin miners and Bitcoin spot ETF buyers. “Only ill-informed traders are willing to buy here. Breaking this support could cause a sharp decline to the low $50,000s,” a company report stated.

“How far BTC can go will depend largely on the continued selling by large entities,” Justin d'Anethan, head of APAC business development for market maker Keyrock, told Decrypt. “We can see some support in the lower $50,000s, when Bitcoin was stagnating between $50,000 and $52,000 in February.”

Some of the largest investments in Bitcoin are now coming from ETFs following their January approval. But in the world of traditional finance, Bitcoin sticks out like a sore thumb.

“Crypto ETFs belong to the most volatile investments in a traditional investment portfolio otherwise consisting of bonds, diversified stocks, and commodities.” Maire said. “Therefore, whenever portfolio managers need to sell the most risky assets, crypto is a likely candidate.” 

While the short-term may be bleak, analysts are more optimistic over the medium term.

“Despite the correction, the options market is still heavily skewed towards BTC growth, as evidenced by the strong interest in long-term options at the $100,000 to 120,000 strike,” Kuptsikevich said. “According to QCP Capital, this points to the likelihood of a resumption of the rally by the end of the year.”

In other words, just hodl on a little longer. And while that’s certainly been a winning strategy for the earliest Bitcoin buyers, anyone who bought at the peak last March is certainly feeling the pain.