From technical data to revenue, market indicators are flashing red or orange for the biggest cryptocurrency, which has lost a third of its value in just two months.
And now ?
The Limited Bitcoin History is not really a guide to crypto winters, which we define as a prolonged decline for a month or more.
There have been five since 2017 and three since 2021. Last year’s two crashes lasted 14 and 10 weeks and caused bitcoin to lose 45% to 47%. If they were typical, bitcoin’s latest drop – 36% in eight weeks – still has some way to go.
“Bitcoin just isn’t attractive to retail investors right now. No one really sees this potential for bitcoin to give 10x (yield),” said Joseph Edwards, chief financial strategy officer at the company. Solrise Finance fund management.
Indeed, the macroeconomic context is far from being favorable to an asset class now firmly perceived as volatile, risky and vulnerable to inflation. As concerns over rising global rates and geopolitics bring US equities close to confirming a bear market, cryptocurrencies are not on anyone’s shopping list.
Yet even in the frosty wilderness, there are signs that the king of crypto is preparing his comeback.
Bitcoin derives its strength from the rest of the crypto market, for example, its relative stature providing some comfort to investors shunning altcoins such as stablecoins deemed ultra-risky after the collapse of TerraUSD in early May.
Bitcoin dominance, a measure of the ratio of its market capitalization to the rest of the cryptocurrency markets, hit a seven-month high of more than 44%, even as its price declined.
“Institutional investors in particular are fleeing to safety, to some extent, to bitcoin, which has the most institutional adoption,” said Marcus Sotiriou, analyst at UK-based asset broker GlobalBlock.
Last week, bitcoin futures recorded their largest net long position since the contract was launched in 2018, according to CFTC data, indicating that traders are increasingly positioning themselves for a rise in the price of cryptocurrency.
Graphic: Crypto Winters – gfx/mkt/akpezrmbgvr/Pasted%20image%201653292753399.png
FEAR AND APICIDITY
Scary times, though.
Bitcoin has lost half its value since peaking at $69,000 on November 10. This week it is flirting with $30,000, after hitting a 17-month low of $25,401 on May 12. It remains the largest digital asset by market cap, but the market value of all cryptocurrencies now stands at $1.3 trillion, less than half of $3. trillion peak in November.
Market sentiment data platform Coinglass’ Bitcoin Fear & Greed Index – where 0 indicates extreme fear and 100 indicates extreme greed – is hovering at 13.
Ether, the #2 token in market value, has been hovering around the $2,000 mark and is down around 60% from the November 10 high of $4,868.
Bilal Hafeez, CEO of research firm Macro Hive, pointed to $2,300 and $2,500 as key levels and warned that failure to hold above either mark at short term would be a bearish signal.
The crypto market is intimidated.
Total spot market volume for all cryptocurrencies on major exchanges had fallen to $18.4 billion on Monday – less than half of the $48.2 billion seen on May 14, which was the highest volume high for 2022, according to news and research site The Block.
Blockchain analytics firm Glassnode said on May 9 that bitcoin at $33,600 is putting 40% of investors underwater on their holdings.
“A lot of people are wondering what should they do with their parts – keep holding on for life or the pound losses and move on?” said Lindsey Bell, head of markets and currency strategist at Ally Invest.
“It’s a good reminder that crypto probably shouldn’t make up more than, say, 1-2% of your portfolio.”