The Bottom is still far in Crypto Market
The crypto winter is just getting started, and everyone is wondering as they ask Google if the prices of Bitcoin and other Altcoin will ever go back up. I am not a prophet of doom, but if we can take a look back at the recent history of the crypto market downturn in 2016, 2019, and 2020, and the current happenings, where the Feds are trying all they can to add interest rates in order to fight recession, you will agree with me that the bottom is still far in crypto market.
The global crypto market value was more than $2.9 trillion in November 2021 but has collapsed to around $1 trillion currently, thereby making this year a tough one followed by massive sell-offs.
The crypto market is volatile to the extent that the world’s most popular and largest crypto, with a market capitalization of over $447 billion, is also not immune to the market weakness. Of course, you know I am talking about Bitcoin.
We all saw how Bitcoin peaked at a new all-time high in November 2021 to the tune of over $68,000 but dropped to as low as $17,700 in June 2022. Bitcoin prices have been shuttling currently between $21,000 to $24,580.
Delta Blockchain founder Kavita Gupta has been in the cryptocurrency space since 2013, she told CNBC that from experience, they see a new all-time low in every crypto winter and the next expected all-time low will have Bitcoin prices dropping between $14,000 — $16,000, while Ethereum could drop to three digits.
While traders are still trying to figure out where the crypto market bottom will be, the macroeconomic situation of hike in prices of commodities is also hurting the crypto market with the role of the U.S reserves alongside other central banks increasing interest rates that hurt risk assets such as stocks.
The correlation of cryptocurrencies with the U.S stock markets is rather surprising as prices of both assets have fallen together. The fear of recession also contributes to the crypto market not finding a bottom yet, but an improved macroeconomic situation could go a long way in reaching the bottom price.
CK Zheng, who is the co-founder of ZX Squared, a cryptocurrency-focussed hedge fund, said in an interview with CNBC that, “I think if inflation is under control, the economy is under control, there is no really severe recession, then the market will stabilize.”
Vijay Ayyar, who is the vice president of corporate development and international at Luno crypto exchange, also pointed out that the crypto market will find a bottom if the inflation and economy are getting under control.
Apart from the inflation and recession fears, other factors such as the leverage of borrowed funds into the crypto market and trading pattern also affects the huge distance we have to the bottom.
The latest crypto market boom and bust cycle was also aided by the level of leveraged funds in the system. Lending platforms like Celsius did promise retail investors high profits for depositing their crypto. Celsius then lends out their depositor’s crypto to others willing to pay back in high interest while they pocket the profits. This business model was tested when the crypto market prices crashed. This made Celsius file for bankruptcy.
Three Arrows Capital is another crypto hedge fund company that used excess leverage of borrowed money to bet bullishly on the crypto industry but was plunged into liquidation with their extensive list of counterparties during the crypto market crash.
With all these crypto-based companies and projects collapsing, Zheng of ZX Squared pointed out that the crypto market could find a bottom when there are no more surprises of companies collapsing. Hence, the need for crypto-based projects to understand how to manage risk by not being bullish even when the market is bullish.
The bottom is still far in the crypto market, but that does not mean it is the end of the world. This is just a phase that will pass and bring the crypto market into stronger light.
