Market wrap: Bitcoin could fall as low as $20k


The aftermath from the stock market crashes around the world caused by the COVID outbreak resulted in record numbers of new participants entering the market. It also created an influx of inexperienced investors into Bitcoin and the cryptocurrency market.

Many of these investors had either never invested before or had very little knowledge and experience, and now with the market falling these same investors are really being tested.

Unlike the stock market, those who plunge into Bitcoin and other cryptos are largely unaware of exactly what they are buying or the risk they are taking.

bitcoin cryptocurrency blockchain

Since Bitcoin made an all-time high in October last year at $69,375, it has fallen nearly 60% in price and is looking like it is on its way down to $20,000 or below.

Investors need to understand that when buying Bitcoin they are not buying an asset and there is nothing backing the currency. The only thing that makes the price of Bitcoin rise or fall is the perceived demand by those who choose to trade it; therefore, there is nothing to value Bitcoin on other than what someone believes it's worth.

Despite the high risk nature of Bitcoin, you can make money by investing in these markets provided you know what you are doing and the risks you are taking.

Currently the price of Bitcoin is back to where it was nearly 18 months ago and is getting cheaper. I expect we will continue to see further falls for the next few months and for price to fall at least another 20% if not more.

The best and worst performing sectors this week

The best performing sectors include Industrials and Utilities, which are both up more than 2% followed by Materials up more than 1%. The worst performing sectors include Consumer Staples down more than 3% followed by Consumer Discretionary down more than 2% and Healthcare down more than 1%.

The best performers in the S&P/ASX top 100 stocks include Allkem Limited up more than 11% followed by Pilbara Minerals up more than 10% and Mineral Resources up more than 9%. The worst performing stocks include Metcash down more than 9% followed by Magellan Financial Group and Wesfarmers, as both are down more than 8%.

What's next for the Australian stock market

This week has been interesting with the market rising for the first three days only to see it fall away on Thursday eroding all of those gains. The continued volatility in our market is not unexpected and should continue for another couple of weeks. That said, this doesn't necessarily mean our market will be bearish over that time.

While I still believe most, if not all, of the fall has already occurred, this is unconfirmed and so I continue to urge everyone to be patient. If our market is to return to being bullish, price needs to hold above the recent low on May 12 at 7157 points. If it can do that in the short term and then start to rise into the end of the month, it is likely we have seen the end of the current bearish move.

However, if our market falls below the low of May 12 in the short term, it is still possible for the All Ordinaries Index to fall below 7,000 point and possibly to around 6800 points. Again, until a direction is confirmed, it is wise to sit back and wait until the dust settles.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.