The Bitcoin bear market has made many investors skeptical about the long-term outlook and growth opportunities. But Peter Habermacher, CEO of Aaro Capital, takes a different view. The famous name says that the current situation is far from the first bloodbath in the crypto market. So where is the entire crypto market headed, including BTC, SHIB, and Ethereum?
What happened in 2022?
The crypto market hit all-time highs in November 2021. After that, it crashed in May and June 2022 and hit mainstream media for all the wrong reasons. This market decline was caused by the collapse of the Terra ecosystem and the consequent knock-on effect. This has resulted in huge losses for some of the major crypto market players. The largest was Three Arrows Capital, a crypto hedge fund that managed more than $15 billion at its peak. As we reported as Kriptokoin.com, Three Arrows Capital was a highly leveraged hedge fund and influenced hundreds of projects. This event pushed the market into a liquidity crunch. It then led to a massive leverage loosening and withdrawal of credit for the entire ecosystem.
The problems causing market turmoil are nothing new. Breaking exchange rates; Many problems such as high leverage drag the market into volatility. These market problems have occurred hundreds or even thousands of times in traditional finance. Amid the chaos, decentralized lending platforms like Celsius took advantage of the lack of reliable intermediaries through rules-based overcollateralization and position liquidations. Therefore, market events did not affect the functioning of the protocols.
Cycles in the crypto market
The crypto market has historically seen exuberant and parabolic market peaks. Bear markets have always followed. The market follows a 4-year market cycle relatively closely in this regard. Market cycles roughly follow Bitcoin’s halving events that halve the supply rate of new Bitcoin. Currently, the next Bitcoin halving projected for March/April 2024 will change the current situation. In other words, the transition to the bull market is likely to occur on this date. Then, the rise of other cryptocurrencies such as SHIB and Ethereum can be paved.
Historical Bitcoin drops
There is an important part of determining where we are in the crypto market cycle. This is to compare where we are in terms of price relative to previous Bitcoin bear markets. The details of each market cycle are different. However, the dynamics of each cycle have similar characteristics. The maximum drop of the current market cycle has been less severe than before so far.
The highs and lows of the crypto market are becoming less extreme over time as the market matures and the crypto derivatives markets grow. That is, we can expect the maximum decline in the current market to be much less severe. We may be close to the new bottom of the cryptocurrency market. As a result, cryptocurrencies such as Bitcoin, SHIB and Ethereum are likely to rise soon.
Where are we in the current crypto market cycle?
The first market data we will look at is the unrealized profits and losses of market participants. This gives an idea of the mindset of investors and how they will behave in the near future. Someone sitting on big profits behaves differently than someone sitting on big losses. These data generally indicate that the market is in a late bear market. The Bitcoin mining industry also supports this. The industry has historically only acted under the financial stress that has occurred in the last phase of bear markets.
There is also a more traditional way of accessing market health. This is technical analysis that tries to understand at what prices the market is willing to buy and how much to sell. Indicators based on price data are used to identify overbought or oversold conditions for Bitcoin. The aforementioned data signals that we are approaching the end of the bear market. Accordingly, Bitcoin is in the highest oversold region ever seen.
Who is buying Bitcoin right now?
The market dynamics of late bear markets are similar regardless of asset class. They are driven by the same human emotions as extreme fear. The second key driver of late-stage bear markets includes the dynamics between so-called “weak hands” sellers and buyers who are called “strong hands”. Weak hands are people who want to go out to limit their losses or sell assets out of necessity because of their difficult financial situation.
Strong hands are defined as long-term holders in the data. These tend to be more sophisticated investors who sell high and buy low. They do this by accumulating Bitcoin when the market is weak and gradually selling Bitcoin during strong bull markets. We are currently seeing a very strong accumulation and diminishing liquid supply by Long Term Holders.
When will Bitcoin offer returns?
Investing in Bitcoin is important in bearish market conditions after extreme market dips. It is necessary to keep this investment for a longer period of time historically. That is, it is much more profitable to invest in a bear market rather than investing in bull market conditions after a market rally. It makes sense to buy cryptocurrencies like Bitcoin, SHIB and Ethereum in the bear market for high profits.
What about the broader macroeconomic backdrop?
Since the beginning of the year, Bitcoin and other crypto assets have experienced higher correlations with stocks and exhibit characteristics of risky assets. Before 2022, even in late 2021, correlations between crypto and all other asset classes were near zero and short-lived. Despite recent high correlations, statistical analysis shows that the risk factors that drive stock markets generally do not drive crypto asset markets. Market correlations are the average of many independent buyers and sellers. For crypto specifically, different market participants look at cryptos like BTC, SHIB, and Ethereum differently in their portfolios.
Analysis of futures and spot markets for Bitcoin reveals important data. It highlights the growing correlation between crypto and other asset classes. It also shows that it is largely driven by the futures markets, which is pulling the market down. However, as any sophisticated investor will know, mid- and long-term prices are determined by demand and supply in the underlying spot markets. There is less evidence that a traditional risk rotation has taken place among Bitcoin spot holders. Based entirely on previous crypto market cycle timings, a crypto market peak in the second half of 2021 and a deep bear market in 2022 were always possible regardless of macroeconomic conditions.
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