August 8, 2022

Should we wait for the end of the bitcoin bear market?

Should we wait for the end of the bitcoin bear market?

The other day before our eyes, there was a fiercethe battle of bitcoin bears abroad is $ 29,000, and so far they have lost. It is possible that this event will determine the dynamics of the crypto market until the end of the summer, and maybe even the year. The market drawdown has been going on for more than two months, but the June BTC low of $ 28,800 has not yet been overcome. The inability of the bears to push the rate deeper can be perceived by investors as a signal that the bottom has been reached, and the market will enter a new phase.

Have the bears given their last fight?

In many ways, Bitcoin bear market May-July 2021 resembles the bear market September-December 2019of the year. From time to time, the rate of the leading cryptocurrency collapses, bounces, stabilizes for some time, and then collapses even deeper again. Over time, the intervals between collapses increase and the depth decreases.

Here are the major bear market crashes of 2019.

  • September 26 - $ 8100 (from $ 10000)
  • October 6 - $ 8000
  • October 24 - $ 7500
  • November 24 - $ 7000
  • December 7 - $ 7200
  • December 17 - $ 6600
  • January 2 - $ 6900

If in September-October the bitcoin rate collapsedquickly, then in November-December each new anti-record required almost a month of "preparation". There were also “unsuccessful” collapses on December 7 and January 2, which did not set new anti-records. The failure of the bears on January 2 was taken by market participants as a buy signal, after which the bear market ended and the rate began to rise rapidly.

Now let's look at the major lows of 2021.

  • May 12 - $ 49,000 (from $ 57,000)
  • May 19 - $ 35,000
  • May 24 - $ 32400
  • June 9 - $ 31,700
  • June 22 - $ 28800
  • June 26 - $ 30,100
  • July 20 - $ 29300

Just like two years ago, it is getting harder for bears nowpush the course. The last low - $ 28,800 - was last month. The new collapse has not yet been able to update the anti-record, and the bitcoin rate (as of July 22) bounced above $ 32,000. This is the second failure of the bears. The last one was on June 26 and sent BTC to an area above $ 32,000 for almost a month, a new failure could be the end of a bear market (as in early 2020).

Belief in the fortress of the turn of 30,000

The levels of $ 30,000 and a little lower were not accidentallythe center of the struggle. Analysts have repeatedly pointed to this figure as the strongest bastion of cryptocurrency. It has fundamental reasons: about how much BTC should cost at the end of the year, if we remove the speculative component of the price.

The "base" price of the first cryptocurrency, determined bymainly by the contribution of long-term investors (who are not ready to sell the asset and therefore prevent the exchange rate from falling below a certain level), has approximately doubled annually since 2015. For example, at the end of 2018 during the crypto winter, BTC was worth about $ 3500, at the end of 2019 after a bear market - $ 7000. At the end of 2021, its estimated price should be at least $ 28,000-30,000.

Such extrapolations do not always work.But today it is important that many analysts and investors are aware of this pattern and are guided by it, avoiding selling coins at lower prices. Moreover, the very repeated mention of this level in analytical articles led to the fact that many market participants believed that the bottom is exactly there. Therefore, they also refuse to sell.

In fact, the bears are opposed by the investors' belief in the impenetrability of the $ 28-30 thousand levels, and now this belief has only intensified.

Should we wait for the end of the bitcoin bear market?

Policy influence is shrinking

An interesting feature of the recent collapse is itsrelatively weak connection with political events. News from China has ceased to particularly affect the market: investors have already come to terms with the fact that in the Middle Kingdom, things are not very good with cryptocurrencies. The importance of the EU initiative to ban anonymous bitcoin transactions should not be overestimated either: according to lawyers, even if it is approved, it will take years before the relevant laws are passed. During this time, a lot can change. Other factors in the fall were purely economic: the US stock market crash on Monday and the Grayscale Bitcoin Trust unblocking 16,000 BTC on Sunday.

By and large, the factors listed wereonly for reasons. Bouncing back at the end of June, BTC has had a negative trend since the beginning of July, and it was only a matter of time (and depth) before another crash. However, it is possible that this collapse was the last in the series. It is symbolic that the "culprit" of the May collapse, Elon Musk, spoke out in support of bitcoin on Wednesday, accelerating the recovery.

What to expect next. Three scenarios

Not finding sufficient news "trump cards", the bearshave not yet been able to bring down the crypto market below the June low of $ 28,800. Depending on its dynamics in the coming days, three main scenarios are possible for the coming months.

New rally.If the BTC rate quickly enters the area above $ 35,000, this may be perceived by the market as a signal for an urgent buy. FOMO investors will play a significant role in this. The bitcoin rate will return to levels of the order of $ 50,000, and maybe update the April record of $ 64,000.

Flat.If BTC gets stuck at the current $ 32,000, then due to the uncertainty of the bulls, it risks staying in the $ 30,000- $ 40,000 range for a long time. Approaching $ 40,000 will serve as a signal for skeptics to consolidate profits, leading to a correction.

Continued decline.If the bears take revenge in the coming days and nevertheless bring down the rate below $ 28,800, then some rebound is inevitable anyway, but the bear market will continue. In August, we may well be able to see new lows of the order of $ 27,000- $ 28,000.

At the moment, of these scenarios, the second seems the most likely, but the coming days may change the balance of power.

text: EXANTE Senior Analyst Viktor Argonov