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Bitcoin Dips Should Not Cause ...January has seen the price of Bitcoin fall. However, historical data suggests this is quite normal, and a bull run may follow. We discuss this in the article below.
Bitcoin had a tepid start to the week. Its value dipped to $93,000, which signaled a daily fall of 1.6%. This brought it perilously close to the support zone of $92,000, which has been in place since November. It was also a week when other major coins like XRP and Dogecoin had huge losses. However, this could be a good thing when looking at historical analysis.
The January Slump
A lot of this can be laid at the door of nonfarm payrolls, the data for which was released on Friday. It measures the number of workers in the US, excluding those in farming. Payroll data provides key metrics on unemployment, which can impact GDP and thus the wider economy. While payrolls increased, the number of unemployed declined from 4.1% to 4.2%. This was exacerbated by a reduction in hourly earnings, going down by 3.9% year on year. This is a surefire indicator of rate cuts, echoed by Goldman Sachs in a note to their clients. However, Bank of America has stated that it thinks a pause is likely as opposed to cuts. They believe tightening or rate hikes are possible.
None of this is new in the volatile world of Bitcoin. This is particularly true of historical trends in January after a Bitcoin halving event. This occurs every four years, and the last one took place in April 2024. This is when the reward for mining Bitcoin is halved, thus reducing the supply. It is then followed by new highs and bull runs for the currency, notably three and six months later. These spikes have been delayed this time around, but they have occurred, as seen in Bitcoin's recent record highs. A look at the Bitcoin price analysis shows that this month it reached $102,300 before falling to $92,000.
It is worth noting that the first January of this cycle always sees a dumping of Bitcoin after a halving event. This occurred in 2017 and 2021. In the former, Bitcoin slumped by around 30% in the January month. By no means is this month's traditional dip anywhere near that volume. Every cycle changes, but this one is different as the world is in a more forward-thinking phase of mainstream crypto adoption. This leaves two possible scenarios. A similar fall could occur that may see Bitcoin drop to below $70,000. However, this could be preceded by a run that may see it reach as high as $200,000.
Looking into the data further, Bitcoin is creating a head and shoulders pattern. This leaves it with several scenarios, one of which is the aforementioned drop in price. If this happens, there will probably never be a better time to buy. A second scenario is a much smaller dip in price. Known as a bear trap, it tends to spook people and cause them to enter bearish mentalities. After this comes a short push upward in price.
Bitcoin Miners Stockpiling
According to the Financial Times, Bitcoin miners have begun to stockpile the currency in a bid to ride out profit squeezes. Some of the biggest companies have used the high price to raise $3.7bn from their investors. This has then been used to fund the purchase of more Bitcoin.
While sentiment is high in the US for the future of cryptocurrency, mining it leaves one with a very down-to-earth problem. This is the increasing price of energy, which can hamper the profitability of Bitcoin creation. Previously, plans were bold and brazen, with a discussion of expansions and the capacity for AI integration. In a year where the reward for mining is halved and energy costs are going up, these plans may no longer be viable.
Estimates are that after the halving event, the average price to produce one Bitcoin was $55,950. This was a raise of 13%. When further fees were added, the total cost came to around $106,000. This is against a valuation of around $102,175, showing a loss for those making Bitcoins. If Bitcoin does not rise, this will see miners go out of business. Thus, if a price fall comes, the supply of Bitcoin could quickly dry up. However, this scarcity itself is likely to push the value of Bitcoin up. So, the cycle continues.
Bitcoin does have consumer sentiment behind it, however, and with governments backing and adopting it, companies have begun to make the US their crypto home. Mara Holdings is one company that is making more of an effort to buy and stockpile Bitcoins. If historical data is to be believed, Bitcoin still has some way to go. This will happen even if bigger dips in price proceed with this. The January slump should not be an indicator of how Bitcoin will fare for the rest of the year. However, this year is one of uncharted waters, and it will still pay to keep an eye on events in finance and politics to gauge what direction this will take.