It’s now been three months since the price of Bitcoin hit an all-time high of just under $ 65,000. For most of the past two months, Bitcoin (BTC) has traded in the $ 30,000 to $ 40,000 range, which is up to 54% below its high
The downturn came at a time when many analysts were predicting the exact opposite – a bull cycle that should hit new record highs within months – and some even speculated that a six-digit BTC price would hit this year.
So what’s up? Is the current market downturn just a slip on an otherwise uptrend or is the crypto market back in the kind of long-term downtrend that was last seen in 2018?
Bitcoin’s historical price activity has a compelling correlation with its halving cycles, with previous all-time highs being reached within about 12 to 18 months after a halving. PlanB, the creator of the stock-to-flow BTC pricing model, is among the most vocal proponents of it. On Twitter, the analyst remains Determined that the stock-to-flow cross-asset model (S2FX) predicts further upside moves and indicates similar temporary downturns ahead of epic rallies in previous cycles.
So far, the S2FX model has been one of the most accurate price predictions for Bitcoin over the years. Additionally, on-chain metrics seem to support the theory that bearish sentiments could be short-lived. For example, shortly after Bitcoin’s price hit in April, traders suddenly began moving funds to the exchanges, ending a nearly uninterrupted eight-month HODLing run.
Igneus Terrenus, communications chief at the Bybit crypto exchange, believes short-term traders were responsible for the sell-off after BTC’s price spikes. He told Cointelegraph:
“A series of deleveraging events deterred many short-term speculators, whose surrender has accounted for the bulk of the realized losses in recent months. While the euphoria at the beginning of the year has almost disappeared, whales and long-term owners have remained confident despite the overall bearish mood of the market. “
In the last few weeks, however, funds have flowed out of the trading platforms again. Glassnode’s Realized HODL Ratio, which reflects investors’ willingness to abandon their holdings, also appears to reflect patterns similar to previous cycles.
Richard Nie, senior research analyst at Bingbon, believes currency exchange rates are illuminating. Speaking to Cointelegraph, he agreed that the metrics indicated a bullish shift. “We should pay attention to the number of whale keepers and the amount of BTC held by the exchanges,” he said, adding that “more BTC is being withdrawn from the exchanges and moved to private addresses, this is a strong bullish signal “.
Mati Greenspan, founder and CEO of Quantum Economics, told Cointelegraph: “Right now, crypto volumes on all exchanges are lower than they have ever been in the whole year. As soon as trade picks up again, that would be a good sign that the slack is over. “
Broader bullish indicators
Project funding is another key indicator of market sentiment, and 2021 was an outstanding year for crypto startups. As reported by Cointelegraph, the crypto industry recorded more funds in the first quarter of 2021 than in all of 2020 combined, raising $ 2.6 billion.
The downturn since April does not seem to have ruined venture capitalists’ appetites. In late May, stablecoin issuer Circle raised $ 440 million, and just days later, Mike Novogratz’s Cryptology Asset Group announced it was launching a $ 100 million crypto mutual fund.
By mid-June, Bloomberg had reported that total venture capital investments in crypto had surged to over $ 17 billion for the year. Even subtracting the $ 10 billion Block.one invested in its new exchange venture, that’s enough to show that the crypto market’s performance in the second quarter has not yet affected venture capital investment growth.
There are also macroeconomic factors that need to be considered. Amid ongoing uncertainty about the state of the world economy, including Robert Kiyosaki – author of author Rich father, poor father – have predicted a stock market crash. In Kiyosaki’s case, he also encouraged his followers to stock up on gold and bitcoin. There is evidence that Bitcoin may be more closely correlated to stocks, but could a mass sell-off of stocks mean investors ultimately turning to BTC as a safe haven?
Another consideration is Bitcoin’s upcoming Taproot upgrade, which is slated to be activated in November. It is the first upgrade of the Bitcoin network since the spin-off from Segregated Witness (SegWit), which took place in August 2017. Of course, an epic run followed a new all-time high of $ 20,000 in December 2017. It’s hard to say if history could repeat itself in this regard, or if there is even a direct link between the upgrades and the markets, but it is worth thinking about.
Bears in the form of regulators
There is no doubt that the major bearish forces that have shaped markets in recent months have been regulatory factors. In particular, the Chinese government’s crackdown on mining has created widespread uncertainty. Many large mining operations have been forced to go offline – in some cases permanently and in others temporarily as they have been relocated from China to new locations. This migration was undoubtedly a significant cost, and in the meantime, Bitcoin’s mining difficulty has seen its biggest decline in history, which only confirms the impact of the crackdown on the network.
However, lawmakers from other countries have recently started to take a closer look at crypto. India, which did not loosen its stance on cryptocurrencies until 2020, may consider a ban again, although the situation continues to evolve.
The UK’s Financial Conduct Authority recently launched a campaign against Binance, instructing it to cease regulated activities in the country. Now, crypto firms are withdrawing license applications in the UK while users are locked out of the exchange by their banks.
In general, Binance has been under regulatory pressure from around the world for a variety of reasons. In the meantime, it is not yet clear whether regulators are specifically tracking Binance or whether the exchange is simply seen as representing the rest of the crypto industry.
Connected: Binance in the crosshairs: do the regulators watch out for crypto?
Institutional analysts have also made ominous predictions about the price of Bitcoin, with JPMorgan issuing a warning that the short-term lineup for BTC continues to look unstable. While these developments are unlikely to be as seismic as China’s mining ban, they haven’t helped market confidence.
Believing there are reasons to be careful, Daniele Bernardi, CEO of fintech management company Diaman Group, told Cointelegraph:
“If we analyze the Bitcoin price using the S2F model, Bitcoin prices have the potential to triple in the short term. However, we at Diaman have also developed a model based on the acceptance rate. According to this model, a $ 64,000 ATH is fair. “
A stronger cop case?
Since it has already been hinted that most of the signals are suggesting this bull market is only halfway through, is there enough evidence to reverse that direction? All in all – and unsurprisingly – it’s too early to say definitely. On the one hand, there is regulatory turmoil and a considerable one reduce in trading volume, indicating a general lack of interest and engagement. On the flip side, there are some insightful on-chain metrics and investor sentiment indicators that seem to be stacking in favor of a sustained bull market.
Related: GBTC unlocks edges closer as the impact on Bitcoin price remains unclear
In practice, however, the regulatory issues continue to frighten the market, proving that pricing models and VC funding are not necessarily able to allay concerns. If there are further massive crackdowns, the bull market may not be able to recover after all.
The fact that prices have so far held up above $ 30,000, despite perhaps the greatest mining safety test in history, is evidence of the bullish forces at play. If the current regulatory situation begins to calm down, there is every chance that the bullish part of the market cycle will come to its forecast end.