According to experts, an improvement in macroeconomic factors, a certain trading pattern and further shake-up of companies and projects could be essential ingredients for Bitcoin and the broader crypto market.
Bitcoin lost more than 70% from its record price in November
Meanwhile, Bitcoin (BTC) has been trading between $19-22,000 for the past few weeks. The lack of a major catalyst in the above direction worries investors. Meanwhile, experts are trying to find out where the bottom point for Bitcoin is. Here are some of the factors that could help the crypto market find a footing.
Macro factors for Bitcoin
Bitcoin has suffered from the macroeconomic situation of rising inflation, which has forced the Fed and other central banks to raise interest rates. Cryptocurrencies fell hard with stocks in some correlation with US stock markets. There is also fear of recession in the market. But an evolving macroeconomic picture is helping the crypto market find the bottom.
CK Zheng, co-founder of crypto hedge fund ZX Squared, said in a CNBC interview about inflation:
I think if inflation is under control, if the economy is under control, there really isn’t a serious recession. Then the market will stabilize.
US inflation data for June came in warmer than expected on Wednesday. This has deepened fears that the Fed will be more aggressive in its fight to rein in rising prices. However, there are some signs that it may reach the top. According to Vijay Ayyar of crypto exchange Luno, getting the economy and inflation “under control” will help the market find a bottom. The expert also says that this confidence will positively affect the markets:
If we see signs of that this month or even the next few months, it gives the market more confidence that there is a bottoming out in all risk assets, including stocks and crypto.
Meanwhile, according to James Butterfill, head of research at CoinShares, a “softer” Fed and the peak of US dollar strength will help the market find a bottom. A weaker economic outlook could push the Fed to slow its tightening, Butterfill says:
A turnaround in Fed policy and the consequent peaking of the DXY [dollar index] would also help determine a real bottom. We believe this will happen at the Jackson Hole meeting at the end of the summer.
Is the loan ending?
One of the highlights of the recent boom and bust cycle in crypto has been the amount of leverage in the system. First, there are lending platforms that promise high returns for individual investors to deposit their crypto. One of these companies is Celsius, which had to pause withdrawals last month due to liquidity issues. This is because Celsius lends 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 individual customers. However, this business model has been put to the test as prices have dropped.
As quoted by Cryptokoin.com, Celsius reported a $1.2 billion deficit.
Another company that has highlighted the problem with excessive leverage is the well-known crypto hedge fund Three Arrows Capital. 3AC has an extensive list of counterparties to which it is affiliated and borrowed. One of them is Voyager Digital, which has 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.
CoinShares’ Butterfill says so-called 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 ordered equipment that is not delivered or unlocked.
Trading model
Luno’s Ayyar explained some of the trading patterns that will help define a bottom for the market. He said there could be a “capitulation candle” where the Bitcoin price fell further and “wiped out the last remaining weak hands” before “returning strong”. Ayyar says that if this happens, the following will happen:
We will see 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 in the following weeks.
The second pattern is the “accumulation phase,” where Bitcoin bottoms out and trades within a certain range before rising. Either way, it will cause Bitcoin to drop further between $13-14,000. As a result, it means a drop of about 30% for Bitcoin.
Zheng of ZX Squared said that it is possible for Bitcoin to fall between $13,000-15,000. But if institutional investors step in, it’s likely to help support those prices.
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