Bitcoin fell for 9 straight weeks, with notable short-term declines
Since May, cryptocurrencies have been Mired in a trough brought on by a sharp decline, with Bitcoin hitting a bull market low of $26,700 and falling more than 61.3% from its all-time high.
More seriously, the downward trend is widening and deepening, so far, bitcoin has set a record of 9 consecutive weeks of decline, market confidence has been severely shaken, since May 8, the mood of extreme panic has spread for 29 days.
However, the downward trend is not over, and may even deepen: the consensus is that the economy will decline, and recessionary pressures will hit capital markets, weakening them, including cryptocurrencies.
Despite the increasing interest rate and shrinking of the global balance sheet, inflationary pressure has not abated, and economic recovery is still hampered by the epidemic and wars. The situation is not optimistic.
Recently, the Federal Reserve announced the financial results of the first quarter of 2022. While the total assets rose to 8.9 trillion DOLLARS, the us Treasury and mortgage-backed securities held by the Federal Reserve recorded a book loss of more than 330 billion dollars, about 2.2 trillion yuan -- almost equivalent to the latest market value of Kweichow Moutai. It is worth noting that the Federal Reserve has announced that it has officially started shrinking its balance sheet since June. If it tries to accelerate the process by reducing its HOLDINGS of MBS, it will lose money on paper or turn into real losses.
The correlation between bitcoin and the S&P 500 index is at an all-time high, and bitcoin still faces an uncertain macro environment as the global economy shows signs of recession, which is the biggest risk affecting the cryptocurrency's downside.
And the UST and LUNA crashes marked one of the biggest fiascoes in crypto history, sending a warning shot across the bow of the crypto market, wiping out about 3% of its total market cap.
With earnings effects sharply reduced, short-term holders appear to have capitulated, holding positions 35 per cent below the break-even price on average.
It can be said that the cryptocurrency market is still in the state of deep bear market trough, the short-term outlook is worrying.
Pablo Hernandez de Cos, governor of the Bank of Spain, warned of risks in the cryptocurrency market, which he said is now bigger than subprime mortgages before the 2008 financial crisis, and with the emergence of trading instruments such as ETFs, futures and investment funds, These unregulated markets are also becoming increasingly intertwined with traditional finance, with volume in some mainstream crypto assets such as Bitcoin, Ethereum and Tether approaching that of the New York Stock Exchange during some trading sessions.
When asked if bitcoin prices could return to all-time highs this year, macro analyst Lyn Alden said bitcoin prices could surge if the Federal Reserve reverses its current hawkish monetary policy measures, such as raising interest rates. As for its near-term direction, Alden said BTC could still hit a new low, but stressed that bitcoin is trading at a level that benefits long-term holders.
Bear market bottom support is strong
However, from the chain performance, the long-term trend remains optimistic confidence.
Bitcoin's chain fundamentals remain strong. Open interest in the futures market exceeded 450,000 BTC, a record high.
According to Pablo Hernandez de Cos, the Spanish cryptocurrency market is growing exponentially, with crypto-related transactions reaching over 60 billion euros ($64 billion).
So, despite the downturn, the crypto market is not cold.
With the massive increase in the adoption of cryptocurrencies, assets such as Bitcoin have established richer value growth beyond speculation and are rated as investment products that outperform many traditional assets driven by profitability effects.
Cryptocurrencies have become one of the most promising assets while gaining recognition as safe haven assets, especially in the face of high inflationary pressures.
Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said in an interview with Kitco News that cryptocurrencies will outperform all other asset classes once the bear market in risk assets subside and valuations recover again.
McGlone previously said bitcoin could reach $100,000 by 2025. When asked how to get investors out of crypto winter and what needs to happen to trigger a rally, he said, "I think what's going to happen is that the big reversal is just beginning. It could be like the aftermath of 1929, and I think it will be like the aftermath of 2008, which could come as late as it did after the market crash of 1987. The biggest inflation most people see once in 40 years in their lifetimes has just started."
McGlone added, "Once we get past this, I think bitcoin will be considered one of the best assets on the planet. That's my base expectation, I don't know how it's going to turn out, so I think the outlook I'm looking at is I think some of the best assets are going to be gold, LONG-TERM U.S. bonds and Bitcoin, and I think we're going to go back to deflation."
Against this backdrop, most analysts believe that the crypto bear market will be strongly supported, with the current bottom largely established.
Lucas Outumuro, head of research at analytics firm IntoTheBlock, said some on-chain indicators suggest that the current downward trend in crypto may not end up being as brutal as past bear markets.
In a new analysis, Outumuro admits it is "increasingly difficult to make the case that we are not in a bear market". While total cryptocurrency market capitalization is down 57% from its all-time high of about $3.07 trillion in November, Outumuro notes that the decline in fundamental indicators is smaller than in previous bear markets, and since much of the demand comes from speculation, it is normal for transaction fees to fall sharply as trading sentiment wanes in bear markets. However, staying at higher levels suggests demand is stickier.
As a result, cryptocurrencies may outperform other assets and quickly return to the upside.