Fear, uncertainty, doubt. Everyone is wondering where this bitcoin tumble will take us. Those who came for something other than tech are leaving the ship. Venal or not, it is better to have a strong stomach to weather the storm shaking the crypto market.
In order to stay the course, appease gagging and distinguish financial bumps from technological issues, Numerama interviewed two experts, a market analyst, Vincent Boy from IG, and a trader-creator of content, cryptOdin. Cross interview.
Numerama: The crypto market has shown itself to be increasingly sensitive to upheavals in the equity markets and, like them, to macro issues (inflation, Fed, ECB). The current evaporation of bitcoin is therefore not surprising, is it?
Vincent Boy : Nothing is certain in investment activity, but the bubble, created by massive central bank asset purchases and low rates, has driven speculative assets to highs. Bitcoin also benefited and the fall seemed inevitable. With inflation continuing, the delay in monetary tightening is making things more difficult and the downward movement is probably not over.
CryptOdin : The answers are a mix of fundamental and technical analysis. There is a correlation with technology stocks like Tesla or Uber. This whole ecosystem is part of a class of assets called risk-on and they are widely used at the most auspicious times. To balance these assets, another category, the risk-off are used to hedge during crisis/recession phases. There is therefore a constant arbitration between these two categories and the decisions are always induced by the economic and monetary environment. As the situation has deteriorated sharply in the post-covid period with the very rapid increase in inflation, economic agents are arbitrating risk-on at risk-off.
Coming out of the $30,000 zone occupied by bitcoin for a good year, which the current price suggests. The next thresholds will be significantly lower?
Vincent Boy : Indeed, the movement should continue as long as monetary policy tightens. The price of $20,000, a former all-time high from 2017, is a very strong psychological level.
CryptOdin : We must now understand that bitcoin is entering its last phase of a cycle that began in March 2020. This phase is that of a major fall that will generate fear and anger for those who are still in position.
Are there any technical lows in sight where the price could stabilize or even rebound? Or, on the contrary, thresholds which, if crossed, will aggravate the decline?
Vincent Boy : The 20,000 threshold is to be monitored at the technical level, but also psychologically, if this former historic high is broken, this should lead to a new strong downward acceleration, but above all lead to a loss of interest from many investors and push the market into a bear market (a lasting bear market) for several quarters.
CryptOdin : The zones to be observed will therefore be multiple: the first being that of the old ATH (all time high) of 2017, between $18,000 and $20,000. It can serve as a technical rebound point for the price. This means that the price will retrace part of its downward movement, while keeping a bearish structure.
The second being the one that held the price between July 2019 and October 2020. It is between $11,500 and $14,000. A purchase here seems coherent to me, nevertheless this zone could serve as support before a capitulation movement. The last zone I will observe is between $5,000 and $7,000. It corresponds to the impulse of the bullish movement since the beginning of the bull run (the momentum of a permanently bullish market, editor’s note).
Should this bitcoin behavior demotivate bitcoin enthusiasts? Does this crash tell us anything other than supply and demand around an “emerging” asset class, which is taking its place on the financial planet at a unique moment?
Vincent Boy : This might discourage many, who have been trying to make big profits in a short period of time. But it should, on the other hand, allow the techno-enthusiasts to consolidate their position for the long term. For example, using the DCA method (dollar cost averagingthe investment strategy that consists of buying cryptocurrencies for a fixed amount at regular intervals scheduled in advance in order to smooth out the risk).
CryptOdin : For those attached to bitcoin technology, there are no major changes that could harm the protocol. On the contrary, the solutions that are developed on this basis are multiple. Not to mention different blockchains like Ethereum, the bitcoin network remains a carrier of great projects. The Lightning Network continues to grow, including the recent overhaul of the Umbrel project, new versions of Bisq, and the development of the Lightning Market.
In short, a difficult time to pass. But will the purge prove beneficial?
Vincent Boy : In my opinion, the blockchain and the bubble around cryptos can be compared to Internet stocks in the 90s/2000s. Overvalued before the bubble burst, these web companies are now the most valuable and powerful corporations in the world. Cryptos seem to be in the breakout phase right now, but in the future are expected to be among the biggest projects, the biggest companies in the world.
CryptOdin : The period ahead will be complex for the vast majority of investors and traders. Market volumes and liquidity will be greatly reduced, which may induce more violent movements. This phase of the market, well known as the “bear market”, therefore causes exhaustion and impatience among the majority of players. It will therefore be necessary to be as patient as possible during this long period and to play a conservative strategy. The sinews of war is the preservation of its capital and the construction of long-term investments.