How Low Could Bitcoin Price Drop?

Bitcoin experienced a significant downturn in August, marking its largest drop of 2024 and its steepest monthly decline since June 2022. The price of Bitcoin fell by 19% during this period, crashing below $50,000 after the Bank of Japan announced an interest rate increase from 0% to 0.25%. This decision reverberated across global markets, particularly impacting risk assets and cryptocurrencies. 

Impact of the Bank of Japan’s Rate Hike on Global Markets 

The Bank of Japan’s move to raise interest rates has had a profound effect on international markets. Traders who had been borrowing Japanese Yen at low rates to invest in higher-yielding US assets now faced a shift in financial conditions. This change directly influenced risk assets, including Bitcoin, which saw significant corrections as a result. The adjustment in monetary policy has heightened market volatility and affected Bitcoin’s price trajectory. 

Bitcoin’s Lower High Pattern Signals Bearish Reversal 

In July, Bitcoin reached a high of $70,000, marking its third lower high (LH3) for 2024. This pattern has historically signaled bearish reversals, with Bitcoin now down 25% since reaching this peak. The recurring lower high formation has raised concerns among traders and analysts about the cryptocurrency’s ability to sustain its value and its overall market strength. 

Examining Bitcoin’s Key Support Levels 

The recent crash in Bitcoin’s price has brought it below critical support levels of $60,000 and $57,000, eventually falling under $50,000. The formation of a new lower-low pattern indicates further potential declines. Analyst Axel Adler Jr. from CryptoQuant has noted that Bitcoin’s price has fallen below the moderate risk lower boundary of 9%, indicating a worsening market outlook. 

Charles Edwards, founder of the Capriole Fund, suggests that Bitcoin might start to recover at its current range of approximately $52,000. However, if Bitcoin fails to maintain its position above $50,000, the next significant support level could be around $44,000. This level served as a consolidation range from December 2023 to February 2024 and could play a crucial role in Bitcoin’s price recovery. 

The Significance of Addresses Defending BTC at $42K 

Data from Intotheblock reveals that approximately 6.39 million addresses collectively hold 2.38 million BTC at an average price of $42,446. This substantial number of addresses might act as a defensive barrier if Bitcoin’s price retests $42,466, representing an additional 18% correction from the current market value. Such a drop could lead to increased panic among investors and further impact market confidence. 

Technical Analysis and Potential Price Ranges 

From a technical perspective, a price range between $44,000 and $48,000 appears significant. This range is supported by a weekly order block formation and aligns with other technical indicators. Bitcoin’s price might retest the weekly 100-exponential moving average (100-EMA) within this range, with the 0.5 Fibonacci retracement level also converging around $44,672. These technical levels provide potential support areas that Bitcoin might bounce from in the event of further declines. 

Outlook and Recovery Prospects 

Bitcoin’s recent decline reflects a challenging period for the cryptocurrency, exacerbated by global economic shifts and shifting investor sentiment. The significant drop and the formation of new lower lows suggest that Bitcoin might face continued volatility in the near term. While technical indicators point to potential support levels around $44,000 to $48,000, the market remains cautious. 

Investors and traders should closely monitor Bitcoin’s price movements and technical indicators to assess the likelihood of a recovery. The cryptocurrency’s ability to stabilize and potentially rebound will depend on various factors, including broader economic conditions and shifts in market sentiment.