According to one strategist, who predicts that there is a possibility that the world’s top cryptocurrency is likely to drop as low as $13,000, an almost 40% drop from current levels.
“We would still be selling these kinds of cryptocurrencies into this environment,” Ian Harnett, co-founder and chief investment officer of Absolute Strategy Research, told CNBC’s “Squawk Box Europe” Tuesday.
“It really is a liquidity play. What we’ve found is it’s neither a currency, nor a commodity and certainly not a store of value.”
According to Harnett, past crypto rallies show bitcoin tends to fall roughly 80% from all-time highs. For example in 2018, the cryptocurrency plummeted close to $3,000 after reaching a peak of nearly $20,000 in late 2017.
According to Harnett, the drop in 2022 “would take you back to about $13,000,” a “key support area” for the token. At the height of the 2021 crypto frenzy, Bitcoin rose to a record high of nearly $69,000.
“In a world where liquidity is plentiful, the bitcoins of this world do well,” Harnett said. “When that liquidity is taken away, and that’s what the central banks are doing at the moment, then you see those markets come under extreme pressure.”
Last week, the Federal Reserve raised its largest single hike since 1994, a benchmark lending rate of 75 basis points. In response to the Fed’s decision, the Bank of England and the Swiss National Bank later followed suit.
In the past two weeks, the combined value of all cryptocurrencies plunged more than $350 billion. Bitcoin traded at a price of $20,010 Tuesday, down to about 5% in the last 24 hours.
The crypto traders already roiled by the $60 billion collapse of popular stablecoin terraUSD and its sister token Luna, with the crypto market already on shaky ground before the Fed’s rate hike last week.
Further complicating matters is the fall in the value of a derivative token designed to be peg one-to-one redeemable for ether has exacerbated financial troubles at major industry players like Celsius and Three Arrows Capital.