Running With the Bulls: Market Assessment

The last month for Crypto markets have been absolutely brutal for newcomers to the space. Major influencers getting called out for predatory investment advice, China in the news for banning Bitcoin (again), regulatory uncertainty on the horizon. We even read reports of a coordinated liquidation event going after a particular large investor.

News like this can certainly be off-putting in the eyes of nascent investors.

With price action as scary as it has been, is the crash over?

Despite the 50% correction in BTC over the past month, it is quite possible that we have found a bottom on price action. The roughly $33k range is a strong support level for BTC that will be hard to break, but it is possible to still see $25K if retail investors continue to sell off.

Luckily for BTC and the rest of the market, BTC was the most oversold on the daily time-frame since the March 2020 flash crash. BTC went on to do a 20x from there and we do not put a similarly large move out of the realm of possibilities for the next wave for BTC. On the extreme downside, we could be entering a more bearish scenario that leads us to push sideways and lower to 14K over the next 6 months.

Whichever way we see the market go, it’s important to have a strategy set for either direction.

But the media says that Bitcoin is dead…

It is almost as if media outlets save bad news for when the technical indicators are ready for a pull back. It definitely is quite a coincidence at the very least that there is always a news story that tries to be the reason for various market pullbacks when the truth may be much more simple.

When markets are overbought, a correction needs to happen to reset momentum and allow for a more sustained growth cycle. If one was to remove the news and look directly at the charts using Technical Analysis, it would be easy to tell that a retrace was bound to happen.

Unfortunately, most that sold during this downturn were new investors while the majority of dip buyers had been in the space for at least 1 year.

Is DeFi Summer even on the table now?

Given the incredible run that most DeFi projects had last summer, it makes sense that people are hoping for a repeat performance. Fact of the matter is that we are just coming off an incredible 3 month period for most Altcoins that ended over the last month or so. From January to May, Bitcoin dominance dropped uncontrollably from 72% to 40% with not much of a bounce from BTC.

It makes sense for Alts to have a cool off period while BTC regains some strength. Given that we are about a month into this correction across the board, but especially with Altcoins, another rally in the summer is absolutely possible as long as BTC continues to hold at key support levels. There could be another few months of sideways choppy action before we get a better idea of which scenario will be playing out.

Will there be a time without these large pullbacks in the market?

It is possible for the price of BTC to normalize years into the future once it has a 20 trillion plus market cap. Even at those levels, we would still see up to 50% corrections that take months to happen rather than weeks. Other less liquid alts will still retrace 90% but BTC and even ETH in the next 5–10 years should see less volatility as they reach a wider level of adoption.

One major factor that causes these steep drops that is not always talked about is liquidations of leveraged positions. When people are using leverage to bet on the market in either direction and are over-leveraged, the liquidation cascade can be sharp and fast.

Even as the market matures over time, there will still be greed as it is part of human nature. Maybe the pullbacks will be less in percentage over time but as long as people are allowed to bet on the market through leverage, events like this will continue to happen.

The Bottom Line:

Nobody enjoys losing money and seeing their portfolio cut in half over the course of a month, we get it. At the same time we have always had a fundamentally long scope of the market and our investments. Nothing has changed in our outlook.

We are still bullish and our vision for the future of Crypto markets has never been brighter. With the continued mass adoption of this technology by institutions, enterprise, and retail: the world has only just begun to realize the potential that blockchain has to advance the human race.