Bitcoin crashed to below $30,000 and managed to recover — but FUD still shadows the market

A tumble in the Dow didn’t lead to a jump for crypto

Unlike last year — when investors took money off the stock markets amid financial uncertainty and put their capital into crypto — the two markets tumbled together this time, amid the fear of a third COVID-19 wave.

The Dow Jones Industrial Average fell 2.1% just one day before the Bitcoin market crash, the worst since October 2020 for the exchange. Most experts have said that the sell-off was because investors feared stock prices would drop if a third wave of COVID-19 infections took hold.

“The emergence of this more highly transmissible Delta variant… has brought into question the sustainability of this reopening and the recovery,” Candice Bangsund, a portfolio manager at Fiera Capital, told the Wall Street Journal. The UK peeled back all COVID-19 restrictions earlier this week, while the US has been, slowly but surely, returning to normal too.

This sell-off in global markets was imitated in crypto markets, amid fears about the strength of economic recovery. “There's been a broad sell-off in global markets, risk assets are down across the board,” Annabelle Huang, partner at cryptocurrency financial services firm Amber Group told CNBC.

According to her, the sell-off was a result of “concerns of the quality and strength of economic recovery” and “broader risk assets turned weaker including high yields”.

Bitcoin’s stock-to-flow model invalidated

As reported by Cointelegraph, the popular stock-to-flow model, which has so far been used to price Bitcoin, was “farthest from its estimates” after the drop. The model was coined by an unnamed Dutch investor, known only as Plan B, and has been the go-to technique for pricing Bitcoins since 2019.

The model uses Bitcoin’s scarcity — the fact that there will only be 21 million Bitcoins ever on the network — to price the token in a manner similar to gold, silver and other commodities. The stock-to-flow model says that the token should be priced at $88,531 right now, while the market says it’s worth 50% less than that.

Was Bitcoin’s fall the first of many dominos?

The crash was not as massive as the halving event witnessed earlier this year, which brought Bitcoin’s value down from over $60,000 to its currency $30,000 threshold. However, it was big enough to worry or excite investors waiting on Bitcoin to make some kind of movement over the last few weeks.

The cryptocurrency has been stable between the $30,000 to $33,000 price band since the beginning of July. And, everyone wants to bet on which direction it’s heading in next.

Some speculate that it could fall to as low as $10,000, which would wipe out all gains that investors have witnessed since October 2020. Others are hoping for a modest pause at around $23,300, which is where Bitcoin was paused at Christmas last year before its massive rally to over $60,000 in the following months.

The uncertainty around where regulation is headed continues to plague and cast doubt on the future of Bitcoin. Even though it hasn’t been able to move higher, analysts and enthusiasts are hoping it won’t fall any further.

For a more in-depth discussion, come on over to Business Insider Cryptosphere — a forum where users can deep dive into all things crypto, engage in interesting discussions and stay ahead of the curve.

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