Cryptocurrency markets took quite a gut punch over the weekend, with investor sentiment plummeting from the highs of just a few weeks ago to rock bottom.
Bitcoin (BTC) fell below $62,000 on Tuesday, down more than 15% from its latest record price of over $73,000, while altcoin darlings Solana (SOL), Pepecoin (PEPE) and Dogwifat {{WIF}} fell 40%-50%. A pullback from recent highs.
Despite the overall significant drawdown, there are still several reasons to remain bullish on digital assets, even if prices cool further or temporarily level off.
Bitcoin will undergo its fourth halving later this week, an event that repeats approximately every four years, when the supply of newly minted tokens (rewards to miners) is cut in half. Historically, the price of Bitcoin has not moved much around halvings, but this event preceded the parabolic rise.
“As far as a halving event goes, we're in the camp where we don't expect further upward momentum,” said Joel Krueger, market strategist at LMAX Group, adding: “This is a known event.” It is well communicated by the market. ”
However, spot exchange-traded funds (ETFs), which are listed in the US by traditional financial giants like BlackRock and Fidelity, are starting to increase their distribution to financial advisors and wealth managers, making them available to a broader investor base. This halving could be a tailwind for the US as it has adopted Bitcoin. Bitcoin price.
“At the same time, we believe there is room for upside given that this is the first Bitcoin halving to take place in front of a broader audience, now that the Bitcoin spot ETF is live.” Krueger said. he pointed out.
“Thus, a halving event could make these investors even more excited about Bitcoin, forcing them to invest deeper, which could lead to a desire for further exposure.” he added.
Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, said last week: I got it. BlackRock is promoting its Bitcoin fund, IBIT, on the homepage of financial news organization Bloomberg.
Cryptocurrency market momentum has stalled in recent weeks, but macro events were the catalyst for a final correction last Friday. Traditional markets were jittery due to growing concerns about military escalation between Israel and Iran, while bond yields rose as investors priced in expectations for rate cuts on the back of strong U.S. economic data and growing concerns about rising inflation. and the US dollar soared.
Noel Acheson, macro analyst and author of the newsletter “Crypto Is Macro Now,” said the S&P 500's earnings yield is currently lower than both the three-month and 10-year U.S. Treasuries, leading to a decline in U.S. stocks. He pointed out that there is a possibility of a further decline. . She explained that the relationship should be the other way around to compensate investors for the higher risk of owning stocks rather than bonds.
“if [the stock market] BTC and other crypto assets could also take a temporary hit if BTC and other crypto assets fall sharply,” Acheson said.
However, the cryptocurrency drop will be short-lived as other ongoing stories such as store of value, halving, currency hedging, new use cases, and increased adoption will drive accumulation at lower levels. “Maybe,” she added.
Acheson said it was possible, although unlikely, that there could be some good news in the near term that would provide some relief from the rise in yields that has weighed on risk assets recently.
“The Fed could go back to insisting that a rate cut is imminent, which should limit the rise in yields,” he said. “We don't expect this, but if it happens, risk assets should do well.
Large liquidation events in derivatives markets often signal a bottom in asset prices, wipe out excess leverage, and wipe out market exuberance. The crypto market endured one of its most brutal leverage flashes, liquidating more than $1.5 billion in bullish bets on Friday and Saturday combined.
“The market is much healthier now,” said Vettle Runde, senior market analyst at K33 Research. Both open interest and funding rates were significantly reduced, reducing the likelihood of a subsequent liquidation cascade. This comes with companies holding Bitcoin above $60,000, which is a strong signal. ”
events are remembered Actions last August, when BTC plummeted from $28,000 to nearly $24,000 and the liquidation of all digital assets was close to $1 billion. Following the biggest daily drawdown since the FTX crash, the price remained in a very dull range for almost two months before breaking even higher above $30,000 in October.
BTC is down 16% from its all-time high in March, and the current drawdown is in line with typical drawdowns of past bull markets.
The 2016-2017 and 2020-2021 bull cycles all experienced multiple 20% to 30% declines before prices continued to rise significantly. “Few people understand what a normal correction like this in a bull market looks like,” said crypto analyst Onchain College. ×post.
Despite the current tensions, hedge fund QCP Capital said on Tuesday that it continues to see consistent and substantial demand for BTC and ETH, necessitating long-term maturities through March 2025, and that market participants remain He signaled that he expected higher prices to come.
