Bitcoin Falls by Almost 9% Whilst Global Markets Remain Frothy

GB Market Commentary 06/01/2022

by Marcus Sotiriou

Bitcoin is down almost 10% at the time of writing, as there were $800 million of liquidations last night. This shows the significant amount of leverage being wiped out of the market. Currently, Bitcoin is at $42,700 approximately after it fell through the key support of $45,500 yesterday. However, Bitcoin is retesting a key trend line as shown below.

One cause for Bitcoin’s substantial drop, was the S&P 500 falling by almost 2%. The US stock market remains frothy since the FED declaring plans for multiple rate hikes this year as well as the end of QE within the next few months.

Furthermore, Kazakhstan’s internet has been shut down due to protests after a rise in fuel prices. Kazakhstan is the second largest country for Bitcoin mining, with 18% of Bitcoin’s hash rate (computing power), so the internet shutdown caused a 12% drop in Bitcoin’s hash rate within a few hours.

The hash rate is not directly correlated to the price of Bitcoin, but it gives an indication of the network’s security, so a fall can spook investors in the short term. A recent report revealed that some mining firms are already moving out of the country to look for places with a more stable power supply such as the U.S. Despite Kazakhstan’s challenges with electricity supply, hardware manufacturer Canaan is expanding its crypto mining operations in Kazakhstan. In November, President Tokayev called for “urgent” regulation of the country’s expanding crypto mining sector, to ensure an uninterrupted electricity supply for citizens. This shows that there is a clear effort to deploy additional computing power for the country’s Bitcoin mining operations so the long-term impacts of this power shortage may be negligible.