Some merchants and a lot of online casinos accept bitcoin and other cryptocurrencies as a form of payment. However, the extreme volatility might make it unwise to use them to pay for goods or services or gamble. The bitcoin price soared to another all-time high near $42,000 on Friday, but it has since dropped off rapidly.
Are the declines in the crypto market a minor setback, or will they develop into a full-blown correction? It looks like the bitcoin price has officially entered correction territory as of Monday. The question now is how long it will last.
Call for a correction in January
In a recent report, Peltz International offered several predictions about bitcoin. The firm said a price correction was likely, noting that many were expecting one in January. In the past, January has been a volatile month for cryptocurrencies, so it isn't surprising that the market has been in decline these last few days. Additionally, there was no correction in the last six months of 2020, so some would argue that the market was ripe for a correction.
According to Peltz, Anthony Tu-Sekine from Sward and Kissel noted that there is some overhang with bitcoin. Some early adopters hold large quantities of bitcoin, and there hasn't been much movement in those accounts in quite some time. It's unclear what will happen to all those bitcoins, but the price will fall if those early adopters decide to sell.
This week's selloff in cryptocurrencies does suggest that some profit-taking is underway. However, it's unclear whether early adopters who have been holding onto their bitcoin for years are among those who have been selling.
Other reasons to expect a correction
Peltz also pointed out that many bitcoin miners are located in China. Some of them can't or are worried about selling bitcoin because of how the Chinese government is behaving. Peltz noted that Beijing often steps in whenever private players get too big.
Tu-Sekine said that supposedly, Chinese miners own a lot of bitcoins and are just waiting until they can sell them. That also could mean that a large volume of bitcoin could land on the market all at once, negatively impacting the price.
For the bitcoin pullback to be considered a correction, it had to fall 20% from its recent high, which meant a decline to about $33,600. According to Peltz, Tu-Sekine warned that a 20% pullback could trigger a major selling spree, dragging the price down even more. However, he also said that he believed any significant drop would only be temporary.
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