Bitcoin has declined sharply in the past few days, dropping beneath the $20,000 threshold on Friday for the first time in nearly two months. This selloff is attributed to the fallout from the collapse of the crypto-friendly bank Silvergate, speculations over increased regulatory oversight and worsening macroeconomic conditions for risky assets. Are cryptos on the verge of shedding all their 2023 gains?

Crypto space under severe pressure

After a vibrant start to the year for digital assets, investors have been coming up against an alarming number of risks that continually undermine their sentiment towards cryptocurrencies. First and foremost, Silvergate’s liquidation was the latest addition to the huge list of systemic failures following FTX’s collapse. Market participants are largely weighing the possibility of further losses in the crypto space as it seems that the banking system is willing to cut ties with the crypto industry.

Losing access to the traditional marketplace for lenders would deliver another blow to the already low credibility of the crypto sector, with investors probably tilting towards safer and more regulated risky bets. This phenomenon of liquidity draining has already been evident as on Friday the total market capitalisation for cryptocurrencies dipped below $1 trillion for the first time since January 14. Moreover, the famous Crypto Fear & Greed Index recorded a fresh two-month low, suggesting that broader downside pressures are intensifying.

Hawkish Fed adds more pain

As if the systemic cracks were not enough, the recent macroeconomic developments infused more damage on risky assets. In his latest speech, Federal Reserve Chair Jerome Powell made some hawkish statements over the pace and magnitude of the prospective interest rate hikes, which sparked selling pressures on cryptocurrencies.

These growing fears over the impact of a stricter tightening cycle on the US economy were also observed in bond markets, with the inversion of the US yield curve deepening to its highest level since 1981. Higher yields translate into a stronger dollar, which is negative for cryptocurrency prices.

US budget holds negative surprises

In the latest US budget, the US Treasury Department proposed a 30% excise tax on energy costs of crypto mining facilities. It could be argued that the aim of this tax is to lower the overall number of mining companies in the US, which are accused of causing adverse environmental effects and increasing energy prices without providing any real value to the economy. If this bill passes, miners will probably see their margins getting squeezed even more and this could eventually drive the vast majority out of business.

Meanwhile, US authorities transferred $1 billion worth of Bitcoin seized from sources linked to criminal activity to government-controlled wallets. Considering the US government’s stance towards cryptos, investors fear that a potential sale of this large amount could cause a significant negative spike to Bitcoin prices.

Bounce or capitulation?

Taking a technical look, BTCUSD slumped below $20,000 to post a fresh two-month low, but the 200-day simple moving average (SMA) curbed further declines. Therefore, it seems that the king of cryptocurrencies has reached a crucial technical crossroad where a decline below the crucial 200-day SMA could lead to devastating losses, while at the same time a bounce due to the oversold conditions could not be ruled out.

To the downside, the June low of $19,700 may prove to be the first obstacle for the price before the $18,370 region comes under examination.

Alternatively, if the price rebounds from the 200-day SMA, initial resistance could be met at $21,550. Higher, the $23,980 hurdle could prove to be a tough one for the price to overcome.