Like Brexit, Trump, what a woman is, the BBC or vaccines, bitcoin has proved itself one of the battlegrounds in the ongoing culture war.

Some people like it a lot. “Bitcoin fixes this” is the slogan, and bitcoin is thought to be the answer to any number of societal problems – from unaffordable housing, to government overreach, to the financial inclusion of the unbanked, the world’s poorest.

There are many, however, who take the other view. It’s only used by drug dealers and money-launderers. It’s a Ponzi scheme, it can’t scale and it’s destroying the environment.

The latter have been rather noisy of late. The reason?

Bitcoin’s crashed. Again…

Bitcoin has had a painful crash – but this isn’t that unusual

Let’s start with the price. What was $67,500 back in November is now $21,000. It touched $20,000 on Monday. I make that a 70% haircut. Not good.

But not so abnormal either.

Bitcoin has had at least six corrections of 80% in its 13-year life – I make that one almost every two years. And yet, on broader time horizons, the network continues to grow, the number of users increases and the price appreciates.

That kind of volatility is hard to stomach (particularly if you have a large portion of your net worth tied up in it, or, worse, on leverage) and it makes the case for it to become some kind of default money system harder to press.

But it is what it is: a new technology whose purpose is to be money. It’s about as speculative a boom-bust vehicle as you could ever hope to design.

As I see it, there have been two factors driving the price action.

First, we are in the midst of one of the most vicious bear markets in my memory. Just about every asset there is is being battered. (Will oil be the next to go? I am starting to wonder.)

We are talking about deleveraging across the board and, in such a macro environment, there is little time for speculative growth plays like bitcoin, the future of money or not. Panic is acute. There is a rush for cash.

Never mind that, after you account for inflation, cash is losing 10% per annum. For now cash is king – specifically the US dollar, which is breaking out of its range to 19-year highs.

I’m worried this goes to 120, by the way.

If it does (as we have been warning for some time), never mind bitcoin, all assets are in even deeper trouble, be they stocks, commodities or other national currencies. We might even need another Plaza Accord.

But of all the sectors to have been walloped by this bear market, tech, the darling of the preceding bull market, has been hit hardest. Bitcoin may not be a Nasdaq stock, but it trades as though it is, and the Nasdaq has been hit hard.

The wider cryptocurrency sector is in panic mode

The second catalyst to drive crypto prices lower comes from within the sector itself. We wrote a few weeks ago about the collapse of stablecoin Luna and suggested bitcoin would go to $20,000 then with the sudden rush for liquidity. But it didn’t. It held up.

The latest scandal to dog crypto – which has a knock on from Terra and Luna – is around Celsius. And that has driven it to $20,000.

Celsius is one of those lending platforms which paid what seemed like extraordinary rates of interest if you stake your crypto coins with them. They would then lend those coins out. Sort of like banking, really, but with cooler buzzwords. 7% was what it paid for bitcoin, I gather, up to 18% for others.

If it sounds too good to be true, it probably isn’t true.

With falling crypto prices this year, many have been withdrawing their crypto, creating for Celsius a liquidity crisis of its own. The collapse in value of its Terra holdings has only made things worse, while it borrowed ether from customers and staked it in such a way that it is now tied up and can’t sell.

It’s a clusterflip. But it then emerged that it had sent over $300m in coins to exchange FTX. It looked like a rug pull. Cue a market panic, as everyone tried to get their coins back, and in many cases, sell what they have. Before long, Binance, the world’s biggest exchange, also halted withdrawals (only for a period though).

Reading this I imagine most neutrals would not want to get involved in this space at all. Well, fair enough.

I remain of the mind that bitcoin is an extraordinary technological breakthrough and I want to keep my shares in what is the most powerful computer network ever built. Others won’t feel the same way – and perspectives get messed with in bull and bear markets. We are at one of those points where everything looks awful.

How much further will bitcoin fall from here?

I’ve suggested before several times that bitcoin might come back to $20,000. That was its level in 2017 at the end of that particular episode (before it then went back to $3,000). It’s an obvious pivotal price point.

The next question to ask ourselves is: will $20,000 hold?

Well, if this bear market in everything carries on for much longer, the short answer is, “no”. Everything will be going lower.

Here’s a chart with a dashed line at the $20,000 mark.

Let’s hope what was resistance now becomes support. It often does.

If not, the next line in the sand is $12,000.

A speculator might look at that and think, I’ll buy bitcoin at $21,000, with a stop at $18k or $19k. Pretty good odds?

But such chutzpah is hard to find in a bear market after a decline like this. As is the necessary cash.

Who knows what other rug pulls and unravellings are lurking underneath the surface. It usually takes a bear market to expose them. But this whole staking business is being hit by a massive run. If another one unravels, and 3AC is now under the spotlight, bitcoin goes lower.

In the short term.

If you are interested in buying some bitcoin, and I can’t say, given recent action, I blame if you’re not, I’ve put this guide together for subscribers.

This article first appeared at Moneyweek.

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