Cryptocurrency market capitalization falls to $113 billion

On January 21, the cryptocurrency market experienced a growing wave of selling pressure. In the last hour, the price of Bitcoin fell below $30,000 for the first time since January 4. 

Now that Bitcoin has lost the support at $32,000 and $30,000, a growing number of analysts suggest that the price could test the support at $24,000. One of the theories behind the drop indicates that institutional investors saw Bitcoin as a saturated trade and decided to take profits.

Scott Minerd, chief investment officer at Guggenheim, recently suggested that the price of Bitcoin has probably capped for 2021. According to him, it could register a pullback towards the $20,000 level.

JPMorgan strategists John Normand and Federico Manicardi also warned investors using BTC as a portfolio diversifier are putting themselves at risk. Bitcoin is more of a cyclical asset than a hedge.

This note of caution appears to have been very timely given today’s volatility spectacle. Selling can be painful for over-leveraged investors. Meanwhile, a closer look at some of the social activity during the downward movement suggests that the current volatility might not be a macro trend change.

The TIE analyst Erik Saberski indicated that during previous Bitcoin price drops its market cap dominance didn’t really change.

According to Saberski, this implies that at the beginning of the month, sales were retreating completely. Meanwhile, the recent sales of BTC are moving more towards other cryptocurrencies. 

Genesis Mining director predicts the importance of layer two solutions for Bitcoin

Philip Salter, Genesis Mining’s head of mining operations, has a mixed opinion about Bitcoin’s mass adoption as a store of value without requiring second-layer solutions. He thinks that Bitcoin is a good store of value regardless of transaction fees. The problem is that the higher the commissions, the higher the minimum value that can be efficiently transferred. 

Bitcoin has stood the test of time up to this point. BTC has maintained its place as the asset with the highest market capitalization for the past 12 years. However, these days Bitcoin is seen as more of a store of value than digital cash, and Salter believes that complications may still arise from this shift in perceptions.

According to Salter, a few years ago, it was possible to store and transfer $1 efficiently, since the transaction fees were effectively zero. Currently, sending a transaction can easily cost $15, so it is no longer sensible to transfer $1. If this trend continues due to increased use of BTC and higher BTC prices, it will be prohibitive to transfer value in common amounts, and it will be just an effective store of value for substantial quantities.

This is why he believes second layer solutions are a necessity for the use of BTC as a currency and for the long-term viability of BTC as a store of value.