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Will the first cryptocurrency be able to reverse the current trend in the near future, or is the cryptocurrency market waiting for a new period of decline?
Bitcoin for the second month is unable to overcome the pressure of “bears”, and cryptocurrency market participants increasingly began to think about the possible approach of another crypto winter. Director of Alfacash Nikita Soshnikov described his vision of the situation.
Having updated its next all-time high at $ 68,000 in November of this year, Bitcoin has been demonstrating a downward trend for the second month in a row. Since the beginning of December, Bitcoin has completely dropped below $ 50,000, being squeezed between the $ 45,000 and $ 49,000 marks. The first cryptocurrency has not been able to go beyond the boundaries of this price corridor for two weeks already.
If in November most analysts admitted the scenario of bitcoin growth to $ 80,000- $ 100,000, now doubts about the continuation of the “bullish” cycle are increasingly heard. The CEO of the Kraken cryptocurrency exchange Jesse Powell called the onset of crypto winter “possible” in the near future and drew attention to the fact that the cryptocurrency market has historically always been subject to cyclicality, primarily associated with Bitcoin halving, which occurs every four years.
There are several prerequisites for the imminent onset of cryptozyme:
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The cyclical growth of the cryptocurrency market, due to a four-year cycle of changes in the calculation of rewards to miners in the bitcoin network;
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Overheating of the market, which is demonstrated by a decrease in appetite for cryptocurrencies on the part of institutional investors;
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Regulatory pressure on the cryptocurrency market, especially from the American authorities, who have actively begun discussing a bill to tighten requirements for stablecoin issuers;
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The curtailment of the program of economic stimulus and asset repurchases in the US, initiated by the US Federal Reserve System (FRS);
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Strengthening inflationary risks around the world and in the United States in particular and expectations of an increase in the key rate in 2022 in the United States, which will inevitably lead to a decrease in the growth rate of the stock market, and then the crypto market.
But it would be reckless not to notice the important differences between the current recession and the periods preceding the previous crypto winters:
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Unlike 2017, Bitcoin is no longer perceived as a purely speculative instrument for retail investors. The cryptocurrency managed to prove its effectiveness as a tool to protect assets from inflationary risks after the stock market crash in March 2020;
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The cryptocurrency market has experienced a massive influx of investment from institutional investors;
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The decentralized finance (DeFi) industry has emerged and developed, which allows you to maximize the return on investment in cryptocurrencies through the use of complex multi-level coin deposit schemes in various contracts.
If we turn to the history of the cryptocurrency market, we will see that this is not the first or second period of a long recession. Previous crypto winters covered the crypto market in 2013-2015 and 2018-2019. Each time, the bitcoin rate lost more than 80% of its price from the last historical high. And each time the growth of bitcoin resumed six months before the next halving – the reduction of the remuneration of miners for the mined block in half.
It is also worth noting that the growth rates before halving were traditionally inferior to the rate of growth of the cryptocurrency rate after halving. This is already a tradition of halving’s trail of influence on the cryptocurrency market, which can last up to 12-18 months after the reward reduction itself. Six months before the 2016 halving, bitcoin doubled its price to $ 600. After 12 months, it quadrupled in price, and 18 months after the 2016 halving, it rose 30 times.
After a peak in December 2017, the bitcoin price gradually began to decline. A year later – in December 2018 – it fell below $ 4,000, while in December 2017 it was trading at $ 18,000- $ 20,000. If we draw a parallel with the previous crypto winter, then now is exactly the turning point, which in 2022 will turn into a dominant downtrend in the cryptocurrency market.
The dominant bearish sentiment among market participants, including institutional ones, is also evidenced by the statistics of bitcoin futures trading on the Chicago Mercantile Exchange. Over the past week, BTC futures have been trading at a discount relative to the current cryptocurrency price. For example, the discount on a monthly contract with execution in January 2022 reached 14%, and three-month Bitcoin futures were sold at a discount of up to 3%.
According to open CME data, it is clearly visible that until May 2022, bitcoin futures are sold below $ 50,000, and only annual futures for December 2022 are above this mark. Considering that over the past almost two years, institutional investors have increased their influence on the market, it can be assumed that bearish sentiment reigns among institutionalists.
In the second half of 2022, we can expect a multiple drop in the price of the first cryptocurrency. The scenario of the imminent onset of the crypto winter is also supported by the fact that the bitcoin rate dropped below $ 48,000 – the level of the 200-day moving average, which, again, traditionally showed reliable results for determining the current trend in the cryptocurrency market, despite its volatility and not subject to the usual technical analysis.
I believe that crypto winter is really on the verge, but the exact timing of its onset is difficult to determine. To a large extent, they depend on the actions of American regulators in relation to economic incentives, the rate of increase in the key rate, as well as the general sentiment of participants in the crypto market.
The lower limit of the fall of bitcoin during the crypto winter, I would call $ 28,000. Below this mark, bitcoin will not be allowed to leave by those who bought for $ 30,000, as well as miners who are simply not profitable to sell the mined coins at low prices. As soon as the rate tries to go lower, it will immediately be bought back by those who understand that the dominance of bears does not last forever and that the market has already gone through more than one crypto winter.
Any crypto winter is an opportunity to profitably enter an asset. The main thing is not to succumb to a panic sell-off and remember that HODL is still the most effective strategy on the cryptocurrency market.
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