Investments

Bitcoin Declines In November As Chinese Euphoria Fades

Bitcoin suffered some notable losses last month, following a downward trend as it experienced lackluster trading volume and negative sentiment.

The world’s most prominent digital currency endured these declines after enjoying sharp gains the month before, surging nearly 40% in a matter of hours after China’s head of state made optimistic comments about blockchain technology.

The cryptocurrency started November at $9,131.42, before rising to as much as $9,526.17 on November 4th and then plunging more than 30% to a monthly low of $6,524.55 on November 25th, CoinDesk figures show.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

The digital asset managed to recover some of these losses, but still finished November at $7,343.56, down nearly 20% for the month, additional CoinDesk data reveals.

At this point, bitcoin had fallen nearly 50% from its 2019 high of $13,879.24 reached in June and more than 60% from its all-time high of almost $20,000, according to CoinDesk price figures.

When explaining the digital currency’s price movements in November, analysts pointed to several variables.

China’s Impact

Xi Jinping, President of the People’s Republic of China, generated headlines in late October when he stated that it is crucial to “seize the opportunities of blockchain technology.”

The head of state emphasized that blockchain could be used to address many problems, ranging from loan financing for small-t0-medium sized businesses to food safety and social assistance.

Several analysts described these comments as positive, with Marouane Garcon, managing director of crypto-to-crypto derivatives platform Amulet, stating that the Chinese president’s “green light will cause a ripple effect across China.”

However, the enthusiasm surrounding Xi’s optimistic statements wore off once state media outlet the People’s Daily provided some clarification, according to South China Morning Post.

“Blockchain technology innovation does not mean speculating on virtual currency,” said the state media outlet, South China Morning Post reported.

“China’s firm stances on blockchain were initially a positive driver,” noted John Iadeluca, founder & CEO of multi-strategy fund Banz Capital.

Unfortunately, “the Asian market apprehension increased once the state media clarified they didn’t mean cryptocurrency in that stance,” which helped create “an even more tepid market.”

The crypto community amplified the effect both before and after People’s Daily provided clarification, said Iadeluca.

This intensification helped “set the stage for the skeptical and tranquil tone shown by investors & traders in November.”

A ‘Continuation Of Themes’

The world’s largest digital currency by market value has been suffering from sustained malaise, characterized by lackluster trading activity and a long-term, downward price trend.

“Bitcoin price action is a continuation of themes that have developed since this summer,” said Jeff Dorman, chief investment officer of asset manager Arca.

“Volumes are low,” noted Dorman, and “no new money is coming into the ecosystem.”

The sentiment surrounding this cryptocurrency is also bearish, having been “depressed for months,” according to Joshua Frank, cofounder of digital analytics platform TheTIE.io.

“We saw daily sentiment score remain very low from the first to third week of November as price plummeted,” he stated.

“Sentiment began to recover on the 23rd of November and peaked on the 28th as we saw moderate upwards price movement.”

This chart helps illustrate the changes in bitcoin prices and sentiment:

Bitcoin Declines In November As Chinese Euphoria Fades

This chart shows bitcoin prices and investor sentiment in November.

The TIE

Further, Frank added that “We actually saw a moderate bump in the number of twitter conversations, but overall tweet volumes remained down significantly from July YTD highs.”

“Tweets volumes on Bitcoin are pretty flat from mid-October to today.”

This chart helps show the relationship between bitcoin’s price and its Twitter activity:

Bitcoin Declines In November As Chinese Euphoria Fades

Bitcoin’s price vs. its 30-day average tweet volume.

The TIE

Bitcoin’s Downward Trend

Mati Greenspan, founder of the newsletter Quantum Economics, also weighed in on these market conditions.

“If you want to plot it on a chart, we can see that bitcoin has been in a downward channel since the recent peak in June.”

The yellow lines in the chart below, which was created using TradingView, help illustrate this channel.

Bitcoin Declines In November As Chinese Euphoria Fades

Bitcoin prices have been trading in a downward channel since June.

Quantum Economics

“The Xi Jinping announcement very quickly brought the price up to the top of the channel, but market forces eventually drove it back down,” he added.

Tim Enneking, managing director of Digital Capital Management, offered similar input.

“BTC has been trading in a descending channel since June of this year, with both lower highs and lower lows (and, of course, with quite a bit of volatility),” he stated.

However, Enneking emphasized that “if one takes the longer view, the BTC price has been putting in lower highs since it hit almost $20k two years ago,” including the roughly 40% gain it enjoyed in November.

“There have been many attempts to recover, but each has been more tepid than the last,” he said.

Short-Term Outlook

Going forward, the digital currency might suffer further downside before pushing higher, noted Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital.

“With thinning volumes and negative market sentiment, Bitcoin is likely to trade sideways and even drop down to $6k before attempting a bigger recovery,” he stated.

“The volumes indicate participants are on the sidelines and do not expect the price to take a definitive direction in the short term,” noted DiPasquale.

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether and EOS.

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