Here’s what the market wants to see

Here's what the market wants to see
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Cryptocurrencies took a dip in 2022.

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An improvement in macroeconomic factors, a certain trade model, and further shake-up of companies and projects may be key ingredients for this. bitcoin Industry players told CNBC that the broader crypto market has bottomed out.

Bitcoin is down more than 70% from its record high in November, wiping nearly $2 trillion in value from the entire cryptocurrency market.

For the past few weeks, Bitcoin has been trading in a tight range between $19,000 and $22,000 with no major catalysts to the upside and traders are trying to find where the bottom is.

Here are some of the factors that could help the crypto market find a footing.

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Bitcoin has suffered from the macroeconomic situation of rising inflation, which has forced the US Federal Reserve and other central banks to raise interest rates, which has hurt risky assets like stocks.

Cryptocurrencies saw some correlation with US stock markets and fell along with stocks.

There are also fears of a recession, but an improving macroeconomic picture could help the crypto market find the bottom.

“I think if inflation is under control, the economy is under control, there really isn’t a serious recession,” then the market will stabilize, CK Zheng, co-founder of crypto-focused hedge fund ZX Squared, told CNBC in an interview.

US inflation data for June came hotter than expected On Wednesday, deepening fears that the Fed will be more aggressive in its fight to tame rising prices. Again, there are some signs that it may reach the top.

According to Vijay Ayyar, vice president of institutional development and international at crypto exchange Luno, if there are hints that the economy and inflation are “under control,” it could help the crypto market find a bottom.

“If we see signs of that this month or even the next few months, it gives the market more confidence that there is a bottom in all risk assets, including stocks and crypto,” Ayyar said. Said.

Meanwhile, a “softer” Fed and a peak of US dollar strength could help the market find a bottom, according to James Butterfill, head of research at CoinShares. Butterfill said a weaker economic outlook could push the Fed to slow its tightening move.

“A turnaround in Fed policy and the consequent peak of DXY [dollar index] “We believe this is likely to happen at the Jackson Hole meeting at the end of the summer,” Butterfill said, referring to the annual meeting of central bankers.

Is the loan ending?

One of the highlights of the latest bullish and bearish cycle in crypto, the amount of leverage in the system and the contamination it causes.

First, there are lending platforms that promise high returns for retail investors to deposit cryptocurrencies. One of these companies is Celsiushad to pause withdrawals last month as it faced a liquidity issue. This is because Celsius lends this crypto from depositors to others willing to pay high returns and then pockets the profits. That profit has to pay for the return Celsius offers to its retail customers. However, this business model has been put to the test as prices have dropped.

Another company highlighting the issue extreme leverage, crypto-focused hedge fund Three Arrows Capital or 3ACwas known for bullish bets in the industry. 3AC has an extensive list of counterparties to which it is affiliated and borrowed.

One of them is Voyager Digital. Filed for Chapter 11 bankruptcy protection After 3AC defaulted on roughly $670 million from the company.

A number of other companies have also reportedly been exposed to 3AC, including BlockFi and Genesis.

Three Arrows Capital plunged himself into liquidation.

“We don’t know if the de-leverage process is complete. I think it’s still in the process of cleaning up weak players,” Zheng said, adding that this could help when there are no more surprises about the companies’ collapse. the market finds its bottom.

CoinShares’ Butterfill said that pseudo-miners who use special high-power computers to verify transactions on crypto networks may be the next victims of the purge. With crypto prices under pressure, there will be many unprofitable mining operations. Butterfill notes that there are some mining startups that have recently raised funds and ordered equipment that has not been delivered or unlocked.

“A collapse in one of these mining ventures or co-lender is likely and will help define a pit in the crypto market,” Butterfill told CNBC.

trading model

Luno’s Ayyar explained some of the trading patterns that can help define a bottom for the market. He said there could be a “capitulation candle” as the price of Bitcoin plunged further and wiped out the last remaining weak hands “before returning strong”.

Ayyar said that the realization of this shows that “liquidity is held at lower levels and the market is now ready to rise again”.

He stated that this happened in March 2020, when Bitcoin dropped more than 30% in one day before rising steadily in the following weeks.

A second pattern could be an “accumulation phase” where bitcoin bottoms out and trades within a certain range for a few months before rising.

Either way, this could cause Bitcoin to drop further between $13,000 and $14,000; this would be about 30% lower than the price of the cryptocurrency on Wednesday.

Zheng of ZX Squared said that Bitcoin is a possibility between $13,000 and $15,000. But if institutional investors step in, it could help support prices.

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