Where Will Bitcoin Land?

Bitcoin and the broader crypto market were trading higher ahead of a key Federal Reserve decision on monetary policy, expected this afternoon. Bitcoin was trading at around $38,100, up 4%, while Ether was ahead 6% to $2,600.

But crypto has been especially volatile as the markets try to digest new regulatory pressures and a tougher macro climate, including higher interest rates and tighter liquidity conditions. The outlook is hammering tech stocks, and cryptos aren’t being spared with Bitcoin and Ether down more than 40% from all-time highs last November, wiping out $1.2 trillion in the crypto market’s overall market cap.

The volatility reflects the fact that crypto is looking increasingly correlated to equities. It’s also an emerging asset class that trades 24/7 on a variety of centralized and decentralized-financial platforms. There are no orderly-trading mechanisms or circuit breakers that stock exchanges use to pause a steep price drop. Liquidity can also dry up quickly, amplifying the impact of a few large sell-orders.

Moreover, Bitcoin serves as collateral for borrowing other cryptos, and it’s used for pair trades with alt-coins in “smart contracts” on DeFi platforms. As prices for alt-coins tank, positions may be automatically liquidated if traders don’t add more Bitcoin as collateral. That can add to downward price momentum.

The market is now clearly on edge with a bias toward short positions, or traders expecting prices to decline. That’s evident in the futures market, where funding costs for perpetual futures contracts have turned negative. Demand for short contracts is so strong that short sellers are paying to open positions, pushing the cost, or funding rate, negative.

“That gives us a clue as to which way the derivatives market is positioned,” said Sean Farrell, head of digital asset strategy at Fundstrat Global, in an interview. “There’s high demand for Bitcoin short positions with funding rates going negative.”

One implication is that Bitcoin could bounce higher if the Fed policy turns more dovish than the market expects. Short traders could face a “squeeze” if Bitcoin prices jump, forcing them to buy Bitcoin to cover the positions. Conversely, if the Fed proves more hawkish than anticipated, long positions would be forced to liquidate, adding to the downward pressure in Bitcoin.

“The takeaway is that trading ahead of the Fed is tough sledding in either direction,” says Farrell.

Technical indicators, meanwhile, are all over the map. Relative strength indexes are neutral, implying that Bitcoin is neither oversold or overbought. But Bitcoin is trading well below its 200-day and 50-day moving averages, $48,700 and $44,900, respectively. That indicates key support levels have long been breached, making it more likely that Bitcoin could bust through other technical levels.

Some technical analysis indicates a floor at $33,000, where Bitcoin recently hit a bottom and buyers came in to support a move back up. But $29,800 is also a credible floor, based on historical patterns; Bitcoin fell to that low last July and then went on to rally to nearly $70,000.

“A lot of investors would back up the truck and open their chequebooks at prices around $29,000,” says Farrell.

Other analysts see support at $30,000. Mike McGlone, senior commodity strategist at Bloomberg LP, says that Bitcoin has found support at 30% below its 52-week moving average, which would be $30,000 based on the last year’s charts.

“That’s a key level to hold a floor and bounce back to the upper end of its trading range,” he said in an interview, noting that it’s been rangebound between $30,000 and $60,000.

“It’s been a range-trader’s delight between $30,000 and $60,000 for over a year,” he says. “Institutional holders are responsive buyers on an approach to $30,000, and I would see the tide rising at that level.”

Wilfred Daye, head of Securitize Capital, a digital-asset marketplace, also sees support at $30,000. But if Bitcoin drops below $30,000, its next stop could be $27,000.

That’s the price at which Bitcoin mining operations generally break even on their operating costs, he says. Miners earn Bitcoin as payments in exchange for processing transactions on the network; when the price falls below their electricity costs, it’s no longer profitable to keep the machines humming and they tend to scale back.

“A lot of miners will shut down their operations, and start selling Bitcoin to fulfil operating costs if prices hit $27,000,” says Daye. That, in turn, would add to downward price pressure.

And what happens if Bitcoin does drop to $27,000? “That’s a very scary thought,” he says, since it could usher in another “crypto winter” with prices falling more than 75% from all-time highs.

Austin, Texas, company Core Scientific went from bankruptcy to stock market darling this year by betting on two technologies: Bitcoin mining and AI data centers. Shares are up 400%.

But if given the choice of whether to invest more in one business over the other, executives answer without hesitating: the data centers.

“We really just value long-term, stable cash flows and predictable returns,” Chief Operating Officer Matt Brown said in an interview. The company began life as a Bitcoin miner. Even though Bitcoin has been a great asset lately, it’s very volatile. By comparison, Core Scientific can earn steady profits for years by hosting servers owned by companies that sell cloud services to AI providers, Brown said.

This year, you couldn’t go wrong betting on either. Bitcoin is up 116%, and data centers are in high demand because tech companies need them to power their AI applications.

The two technologies seem to have little in common, but they both depend on the same thing: access to reliable power. Core Scientific has a lot of it, operating nine grid-connected warehouses in six states with access to so much electricity they could serve several hundred thousand homes. Other Bitcoin miners have similarly transitioned to data center hosting , but few with quite so much success.

Core Scientific’s business didn’t look quite so good at the start of the year. The company started 2024 under the shadow of bankruptcy protection. It had too much debt on its balance sheet after going public through the SPAC process in 2022 and succumbed to a Bitcoin price crash. But the company’s fortunes quickly turned around after it emerged from bankruptcy on Jan. 23 with $400 million less debt.

The company started the year focused entirely on crypto mining, but quickly pivoted as it saw demand surge for electricity for AI data centers.

In June, the company signed a deal with a company called Coreweave to lease data center space for AI cloud services. Coreweave has since agreed to lease 500 megawatts worth of space. Core Scientific says it will get paid $8.7 billion over 12 years under the deal.

Privately held Coreweave is one of the fastest-growing companies behind the AI revolution. It was once a cryptocurrency miner, but has since transitioned to offering cloud services, with a particular focus on artificial intelligence. It’s closely connected to Nvidia , which has invested money in Coreweave and given the company access to its top-end chips. Coreweave expects to be one of the first customers for Nvidia ’s upcoming Blackwell GPUs.

Core Scientific’s quick success in this new world has surprised even the people who are driving it.

“Every once in a while I need to pinch myself, to see I’m actually not dreaming,” Brown said.

Core Scientific’s success does create a high bar for the stock to keep rising. The company is expected to lose money this year, largely because of a change in the value of stock warrants—an accounting shift that doesn’t reflect underlying earnings. Analysts see the company becoming profitable in 2025, when more of its data center deals start to hit the bottom line. They see EPS jumping tenfold by 2027. Shares trade at about 13 times those 2027 estimates.

The data center opportunity should only grow from here, as tech companies build more powerful AI systems. Of the 1,200 megawatts worth of gross power capacity Core Scientific has contracted, about 800 megawatts are going to data center computing deals and 400 megawatts toward Bitcoin mining.

Brown said the company has good relationships with its power suppliers and can potentially add more capacity without having to buy more real estate. It expects to be able to secure about 300 more megawatts worth of power at existing sites, perhaps by the end of the year.

It’s also in the hunt for new sites, including at “distressed” conventional data centers that have lost their tenants. Core Scientific has figured out how to quickly spiff up bare-bones data centers and turn them into high-tech sites with resources like liquid cooling equipment and much higher levels of electricity.

A single server rack in a standard data center might need 6 or 7 kilowatts of power. A high-performance data center can use as much as 130 kilowatts per rack; Core Scientific is working on increasing capacity to 400 kilowatts. The company likens the process of upgrading the warehouses to turning a ho-hum passenger vehicle into a Formula One racing car.

Core Scientific’s transformation from a broken-down jalopy to a hot rod has been a wild story. Its fate next year will depend on just how quickly the AI revolution unfolds.

Where Will Bitcoin Land?

The technicals are all over the map.