Bitcoin slumped to a two-week low, with analysts pointing to a technical breakdown as well as the recovery of Colonial Pipeline Co.’s ransom as evidence that crypto isn’t beyond government control.
The largest token tumbled as much as 9.9% to $31,036 in New York trading. The wider Bloomberg Galaxy Crypto Index fell as much as 15%, with altcoins such as Ether, Litecoin and EOS dropping more.
The fact that investigators “could trace the untraceable and seize it might be undermining the libertarian, free-of-government-control case,” said Jeffrey Halley, a senior market analyst at Oanda. The implications of that may have provoked the selling, he said.
The U.S. recovered almost all the Bitcoin ransom paid to the perpetrators of the cyber attack on Colonial last month in a sign that law enforcement is capable of pursuing online criminals even when they operate outside the nation’s borders.
The FBI was able to find the Bitcoin by uncovering the digital addresses the hackers used to transfer the funds, according to an eight-page seizure warrant released by the Justice Department on Monday.
While the FBI’s ability to track and recoup the cryptocurrency may go against the anti-establishment ethos that led to the development of Bitcoin, it can also be seen as a positive sign for the sector as it seeks broader mainstream acceptance.
To Bloomberg Intelligence’s Mike McGlone, Tuesday’s decline is “linked to fears of the Feds seizing people’s Bitcoins,” he said. At the same time, “we’ve been in a down-phase for a month now and this is part of it. It’s a continuation of the latest downtrend and this is the latest spark. I thought Bitcoin would be up today on the Colonial news so I’m befuddled.”
Meanwhile, strategists are also watching key technical levels for the cryptocurrency.
If Bitcoin doesn’t continue creating higher lows, it could retest $30,000, which it briefly touched last month during a brutal selloff. If the coin breaches that round-number level, then another wave of selling could follow given the lack of technical support between $20,000 and $30,000. However, Bitcoin’s 14-day Relative Strength Index (RSI) is nearing the oversold level, currently at 32, indicating the coin may find some reprieve.
If the coin continues to decline and $31,000 and $30,000 are taken out, it could retrace its entire breakout from $20,000 and fall back to that level, according to Tallbacken CEO Michael Purves. “This type of ‘round trip’ would not be unusual for an asset (or a stock) which put in an exponential rally,” he wrote in a note, adding that something similar happened after its 2017 rally.
Other market-watchers agree. “The major price support stands at the $30K level, and a slide below this handle could run into stops and accelerate the sell-off in the short run,” said Ipek Ozkardeskaya, senior analyst at Swissquote.
Oanda’s Halley also says that a break below $30,000 could lead to “another capitulation.” Evercore ISI’s Rich Ross sees a test of support around $29,000.
Bitcoin is still up 9% this year but the token has plunged from a peak of almost $65,000 in mid-April, casting a pall over the cryptocurrency sector. The recent selloff was exacerbated by billionaire Elon Musk’s public rebuke of the amount of energy used by the servers underpinning the token. Harsh Chinese regulatory oversight also soured the mood.
“You had this phenomenon where Bitcoin got extended, but nothing goes up in a straight line,” said Dan Russo, portfolio manager at Potomac Fund Management. “That’s something to be expected — you’ve seen throughout its short history these bouts of deep drawdowns. It just got extended to the upside and started to roll over.”
The virtual currency — which has more than tripled over the past year — is now in a “cooling off period” that could last “a few months” longer, said Vijay Ayyar, head of Asia-Pacific at crypto exchange Luno Pte.
(Updates prices throughout, adds technical analysis, adds comments from McGlone, Purves, Russo)
-With assistance from Anchalee Worrachate, Claire Ballentine, Kenneth Sexton and Joanna Ossinger.
First published on: Al Jazeera