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Cryptocurrencies fell in 2022.
Chess Knot | Getty Images
Improvements in macroeconomic factors, specific trading patterns, and further shakeouts of companies and projects Bitcoin Industry players told CNBC.
Bitcoin plunged more than 70% from its November record, with about $ 2 trillion clearing the value of the entire crypto market.
In the past few weeks, Bitcoin has been trading in the narrow range between $ 19,000 and $ 22,000, there is no big catalyst for the upside, and traders are trying to figure out where the downside is.
Here are some factors that can help the crypto market find a floor.
Bitcoin was hit by the macroeconomic situation of rising inflation, forcing the Federal Reserve Bank and other central banks to raise interest rates that hurt risky assets such as stocks.
Cryptocurrencies have some correlation with the US stock market and are declining in tandem with stocks.
There is a risk of recession, but improving macroeconomic conditions can help the crypto market find a bottom.
“I don’t think inflation will be restrained, the economy will be restrained, and there will be no serious recession,” CK Zheng, co-founder of crypto-focused hedge fund ZX Squared, told CNBC in an interview.
June US inflation data It got hotter than expected There is growing concern that the Fed will be more aggressive in the fight to curb price increases on Wednesday. but, There are some signs that can reach the peak..
If there are clues that the economy and inflation are “in control,” it may help the crypto market find a bottom, says Vijay Ayyar, Vice President of Cryptographic Exchange Reno’s Corporate Development and International Affairs.
“If we see signs this month or over the next few months, we will have more confidence in the market that all risk assets, including equities and cryptocurrencies, are down,” Ayar said.
Meanwhile, the “softer” Fed and the strong US dollar peak could help the market find a bottom, according to James Butterfill, head of research at CoinShares. Butterfil said weak economic outlook could delay the Fed’s tightening.
“The Fed’s policy shifts and the resulting peak of DXY [dollar index] It will also help define the true floor. This is likely to happen at the Jackson Hole meeting at the end of the summer. “
One of the key features of the latest cryptocurrency boom and bust cycle The amount of system leverage and the contagion that caused it..
First, there was a lending platform that promised high yields for private investors to deposit their crypto. One of those companies is CelsiusLast month, we faced liquidity issues and were forced to suspend our withdrawal. This is because Celsius lends this cryptocurrency from depositors to others who are willing to pay high yields and puts profits in their pockets. The profit is to be paid on the yield that Celsius provides to retail customers. However, as prices plummeted, the business model was tested.
Another company that emphasizes the problem Excess Leverage is a crypto-focused hedge fund Three Arrows Capital or 3AC, Known for its bullish bets on the industry. 3AC has an extensive list of counterparties that are connected and borrow money from it.
One of them is Voyager Digital. Chapter 11 Applying for Bankruptcy Protection After 3AC defaults to about $ 670 million From the company.
Many other companies, including BlockFi and Genesis, have also been reported to have been exposed to 3AC.
Three Arrows Capital It itself has entered the liquidation..
“I don’t know if the de-leveraging process is complete, I think we’re still in the process of flushing out weak players,” Chung said, adding that it could be useful if the surprise of the company’s collapse disappears. rice field. The market finds the bottom.
Butterfill of CoinShares said that so-called miners who use specialized high-power computers to verify transactions on crypto networks could be the next victim of washout. The pressure on cryptocurrency prices creates a number of unprofitable mining businesses. Butterfil states that there were some mining start-ups that finally raised money and ordered undelivered or unpowered equipment.
“One of these mining startups or their associated lenders could collapse and help define the valley to the crypto market,” Butterfil told CNBC.
Luno’s Ayyar explained some of the trading patterns that could help define the bottom of the market. He said Bitcoin’s price could fall further and there could be a “surrender candle” that “cleans up the last remaining weak hand” before “strongly returning.”
If this happens, it indicates that “liquidity has been captured at a lower level and the market is ready to recover,” Ayyar said.
He said this happened in March 2020 when Bitcoin fell more than 30% in one day and then steadily rose over the next few weeks.
The second pattern could be the “accumulation phase” where Bitcoin spends months trading within range before it bottoms out and rises.
In either case, Bitcoin could fall further from $ 13,000 to $ 14,000. This will be about 30% lower than the price of cryptocurrencies on Wednesday.
Zheng of ZX Squared said Bitcoin between $ 13,000 and $ 15,000 is possible. But with the intervention of institutional investors, it can help support prices.
