Bitcoin stabilizes after plunge, but downside risks remain

Recent volatility in Bitcoin trading has been nothing short of extreme when placed within the context of traditional financial markets. But in the relatively new world of cryptocurrency trading, the recent wild swings in Bitcoin have only been slightly more vigorous than usual.

The latest plunge for BTC/USD began in earnest earlier in the week when reports surfaced that South Korea and China were considering tighter regulations, and even a potential ban in the case of South Korea, on the trading of Bitcoin and other cryptocurrencies. These reports triggered an avalanche of falling prices for key cryptos, most notably the widely-traded Bitcoin, which fell by well over 30% at one point this week.

As the initial concerns over increased Asian regulation began to wear-off, however, BTC/USD began to stabilize on Wednesday after hitting a low well below the key $10,000 psychological level and establishing a new year-to-date low just above the $9,000 handle. By Thursday afternoon trading, BTC/USD was above $11,000 once again, and tentatively taking a breather after a wild ride.

While Bitcoin traders have calmed down in the latter half of this week, the specter of greater Asian regulation on the cryptocurrency has not gone away. The danger to Bitcoin of any increased regulation or outright bans in Asia, which is home to a great deal of cryptocurrency investment and speculation, should not be underestimated. If such tighter regulation comes into being, the price of Bitcoin could take an even more substantial hit.

From a somewhat limited technical perspective, BTC/USD dropped below a key short-term support level around $12,500 in the process of the recent plunge. If the cryptocurrency is unable to re-take that level, and instead falls back below $10,000 again, the outlook should remain bearish given the still-prevailing pressures on Bitcoin. Any further fall below Wednesday’s $9,000-area low would exacerbate this bearish outlook. In contrast, a sustained move back above $12,500 should indicate that traders are brushing off the threat of tighter Asian regulation, in which case BTC/USD could potentially be poised for a return towards January’s highs just above $17,000.