A new crypto winter?

    29 Jun 2021

    The “seasons” on the cryptocurrency market are becoming more and more distinct. If what we witnessed a year ago could be called the “crypto spring”, now everything indicates that the “crypto winter” has begun. BTC went below $ 30 thousand, similar to dropping air temperature that points to the advent of frost.

    The feeling of the “crypto winter” approaching first appeared back in May, and now there are even fewer doubts: the decline in cryptocurrency prices is both significant and protracted. BTC is up 10% YTD, but could soon close its worst second quarter ever. A couple of days ago, BTC actually dropped below $ 30 thousand, which started a panic on the market. Altcoins went down by 30-50%. That being said, the very next day both bitcoin and its “little brothers” climbed back up a bit. If we look at cryptocurrency prices right now, we will see a slight positive against the backdrop of a global “bear” trend.

    So what’s going on? On the one hand, China was an obvious trigger of the current downfall – they cut off electricity to miners, just as banks and financial companies were banned from servicing cryptocurrency transactions. We are only a few steps away, it seems, from the owners of cryptocurrencies being declared “enemies of the Chinese people.”

    China accounted for over 50% of the world’s mining capacity and a significant portion of the demand for cryptocurrencies. Naturally, the hash rate of bitcoin (as well as many alts) and the rates of cryptocurrencies against the dollar fell. The quotes of the main cryptocurrency – BTC – on Tuesday, June 22, went below $ 30,000 mark (According to Binance, after Bitcoin hit the lowest point at around $ 28 805, there was a rebound to $ 34,000)

    The last time the quotes were at this level was five months ago – just as we were observing a rapid growth stage.

    According to analysts at CryptoQuant, June has seen the largest inflow of bitcoins to exchanges since March 2020 (when there was a collapse to $ 6,000). When users send their bitcoins to exchanges en masse, it is considered a “bear” sign – most likely they want to sell those bitcoins. Conversely, large withdrawals of cryptocurrency from exchanges demonstrate that traders are waiting for a better time to sell. CryptoQuant uses the “Whale Surrender Index”, which is now in the positive, meaning that major players have started to sell more actively.

    Now what? $ 25,000 or $ 20,000 marks for bitcoin while altcoins continue their descent to the underworld? Or should we expect a fairly quick bounce back to $ 40,000? But even that would still be much lower than this year’s peak in April ($ 65,000).

    Guessing is pointless, let’s rather look at the fundamental reasons for the fall in prices. There are quite a few of them: the “Chinese attack”, an earlier than expected increase in the FRS rates, fears that the widespread adoption of digital currencies is being postponed due to the environmental campaign. However, are they all so significant that it’s time to talk about the “crypto winter”?

    Amsterdam stock exchange trader Michaël van de Poppe believes that the sole purpose of such market shocks is to “throw out” small investors and traders, while experienced traders and investors saw the moment of panic selling as an opportunity to make an excellent purchase.

    The question is, who are those investors? Most likely, they are those who have been working with BTC for several years and are not afraid of such downfalls. Because, as far as can be judged by the market signals, institutional investors from the world of classical finance, “tempted” by cryptocurrencies at the beginning of this year, are now changing their minds. A recent Bank of America poll found 81% of fund managers consider bitcoin (and cryptocurrencies in general) a “bubble”. Just last month the number was 75%.

    By the way, even though there really was a collapse in altcoin prices, it still wasn’t as dramatic as in the first week of January 2018. So far, it looks more like a sizeable correction in the bull market.

    However, we must also bear in mind that over the past year, a real boom in the DeFi segment has made Ethereum a very significant cryptocurrency, and now people are following its rate no less closely than BTC. Here, too, everything looks rather poorly: back at the May sale, Ethereum lost 60%, a little more than Bitcoin, and overall its jumps over the past three months have been much more abrupt than those of BTC. Which, of course, completely rules out any interest in the second most important cryptocurrency on the part of institutional investors.

    There is only one thing to be said for ETH: its capital growth is impossible without the growth in the price of bitcoin.

    So here is what we can say for now: everything points to the onset of the “crypto winter”, but it still may not come. Microstrategy CEO Michael Sailor reasonably notes: “Over the past 12 months, Bitcoin has been on Wall Street. This is news. Everything else is just noise.”

    Indeed, many experts talk about an “artificial dump” that was timed to coincide with the Chinese events. The fact that there is still room for growth is evidenced by the fact that the stock-to-flow model of bitcoin is at its 10-year low. The aforementioned Michael van de Poppe believes that this indicates a clear underestimation of BTC to USD. And as is known, undervalued assets are the most attractive for investment.

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