If this is a bear market, how long can it last?
Is there a threat of an upward trend reversal or is the cryptocurrency starting to enter a bear market? It is not clear where the market is headed, so consider the facts.
It’s been three months since Bitcoin price hit an all-time high (ATH) near $ 65,000. For the past two months, Bitcoin has traded in the $ 30,000 to $ 40,000 range, 54% below its high.
The downturn comes at a time when many analysts are predicting the exact opposite – a bull cycle that will hit new record highs within months – and some are even speculating that the six-digit Bitcoin price will come true this year.
So what’s up? Is the current market downturn just a slip-up on an uptrend or is the crypto market returning to the protracted bear market that was last seen in 2018?
Bitcoin’s historical price activity correlates attractively with its halving cycles, with previous all-time highs expected to be reached between 12 and 18 months after the halving event. PlanB, the creator of the stock-to-flow (S2F) model for Bitcoin, is one of the strongest proponents of it. On Twitter, PlanB continues to insist that the stock-to-flow cross-asset model (S2FX) predicts further upside moves and indicates similar temporary downturns preceded by epic rallies in cycles.
The S2FX model is by far one of the most accurate Bitcoin price predictions over the years. Additionally, on-chain metrics seem to support the view that the bearish sentiment may be short-lived. For example, shortly after Bitcoin peaked in April, traders suddenly began moving funds to the exchanges, ending a nearly uninterrupted eight-month hold period.
Igneus Terrenus, communications chief at the Bybit exchange, believes short-term traders are responsible for the sell-off after the Bitcoin price surge.
“A series of leveraged liquidation events has rocked many short-term speculators who have accounted for most of the real losses over the past few months. While the euphoria has evaporated at the beginning of the year, whales and long-term owners remain optimistic due to the overall decline in market sentiment. “
In the past few weeks, however, there have been renewed outflows of money on the stock exchanges. Glassnode’s real-world stocks, which depict investors’ willingness to abandon their stocks, also reflect similar patterns in previous cycles.
Bitcoin flow on exchanges | Source: Gassnode
Richard Nie, director of research at Bingbon, believes the stock market flows speak for themselves. He agrees that the indicators are showing an upward shift.
“We should pay attention to the number of whales and the amount of bitcoin that exchanges hold. More and more Bitcoins are being withdrawn from exchanges and to private addresses, which is a strong bullish signal. “
Mati Greenspan, Founder and CEO of Quantum Economics, said:
“Currently, the crypto trading volumes on the exchanges are at their lowest level for the year. As soon as trade picks up again, this is a sign that the slack is over. “
Macro bullish indicators
Project funding is another key indicator of market sentiment, and 2021 is an outstanding year for crypto startups. According to the report by Bitcoin magazine, The crypto industry saw more funds in the first quarter of 2021 than in all of 2020 combined, raking in $ 2.6 billion.
The market downturn since April does not seem to have dampened the appetite of venture capitalists. At the end of May, stablecoin issuer Circle raised $ 440 million.
In mid-June, Bloomberg reported that the total amount of venture capital investments in crypto for the year had reached over $ 17 billion. If you subtract the $ 10 billion Block.one invested in its new risk exchange, that’s enough to prove that the performance of the crypto market in the second quarter is not yet weighing on risk capital growth.
Macroeconomic factors must also be taken into account. In the face of ongoing global economic uncertainty, some, including Robert Kiyosaki – author of the hit book “Rich Dad Poor Dad” – have predicted the collapse of the stock market. In the case of Kiyosaki, he also encourages his followers to hoard gold and bitcoin. There are signs that Bitcoin is becoming more correlated to stocks, but could the mass sell-off in stocks lead investors to use Bitcoin as a safe haven?
Another consideration is that Bitcoin’s upcoming Taproot upgrade will be activated in November. It’s the first upgrade to the Bitcoin network since the spin-off from Segregated Witness (SegWit), which took place this August by an epic rally to a new all-time high of $ 20,000 in December 2017. It’s hard to say whether history can repeat itself in this regard, or whether there is even a direct correlation between upgrade and market, but this is worth noting.
There is no doubt that the biggest declining force that has hit the market in the past few months has been due to regulation. The Chinese government’s mining ban in particular has caused widespread uncertainty. Many large mining operations have been forced to go offline – in some cases permanently and in other cases temporarily, as they flee China to another country to continue mining. This exodus certainly came at a significant cost, and meanwhile, Bitcoin’s mining difficulty has fallen the most in history, which only confirms the impact the grip had on the web.
However, legislators from other countries have recently started to take a closer look at cryptocurrencies. India, which only eased its stance on cryptocurrencies in 2020, may consider a ban again, although the situation continues to develop.
The UK’s financial regulator also recently launched a campaign against the Binance exchange asking it to stop conducting regulated business in the country. Now crypto companies are withdrawing their UK license applications while users from their banks are banned from exchanges.
All in all, Binance has come under regulatory pressure from around the world for a variety of reasons. Meanwhile, it remains unclear whether the supervisory authorities are specifically monitoring Binance or whether the exchange is merely seen as representative of the rest of the crypto industry.
Institutional analysts have also made ominous predictions about the price of Bitcoin. JPMorgan warns that the short-term setup for Bitcoin continues to look volatile. While these developments are unlikely to be as seismic as China’s mining ban, they haven’t instilled confidence in the market.
Daniele Bernardi, CEO of fintech management company Diaman Group, believes there are reasons to be careful:
“If we analyze the Bitcoin price based on the S2F model, the Bitcoin price is likely to triple in the short term. At Diaman, however, we have also developed a model based on acceptance rates. According to this model, Bitcoin ATH is the target at $ 64,000. “
Is there a big bullish fall for Bitcoin?
Since it has already been hinted that most of the signals pointing to this bull market are only halfway there, is there enough evidence to reverse that direction? All in all – and not surprisingly – it is still too early to make any definitive statements. On the one hand, there is regulatory turmoil and a significant drop in trading volume, suggesting an overall lack of interest and interaction. On the flip side, there are a number of on-chain and investor sentiment indicators that seem to be piling up for a bull market continuation.
In practice, however, regulatory issues continue to frighten the market, showing that pricing patterns and venture capital financing (VC) cannot necessarily alleviate concerns. If there are more major pullbacks, the bull market may not be able to recover.
The fact that the price has stayed above $ 30,000 so far, despite perhaps the largest mining safety test in history, is evidence of the bullish forces at play. If the current regulatory situation subsides, there is every possibility that the bullish part of the market cycle could still play out as forecast.
According to Cointelegraph