Crypto winter is approaching after Bitcoin price halved?

Time:2022-01-25 Source: 791 views Trending Copy share

Bitcoin, the world's largest virtual currency, fell below $33,000 on Monday, falling to its lowest level since July last year. Since then, bitcoin prices have recovered above the $36,000 mark, but are still down nearly 50% from their all-time high of nearly $69,000 in November.

Bitcoin price action

Meanwhile, the entire crypto market has lost more than $1 trillion in value since Bitcoin’s all-time high, with top coins such as ethereum and solana falling sharply behind bitcoin. While ethereum has more than halved in value since its peak last November, solana has fallen even more, down 65%.

Some investors fear the worst is yet to come, as cryptocurrency investors are affected by the sharp sell-off in bitcoin and other digital currencies; others believe that bitcoin is just a correction for now and will continue to move higher.

Zhitong Finance APP understands that the slump in cryptocurrencies has some cryptocurrency investors talking about the possibility of a "crypto winter", a term referring to the major bear markets in the history of the young digital currency market. The most recent such incident occurred in late 2017 and early 2018, when Bitcoin plunged 80% from its all-time high. David Marcus, the former head of crypto at Meta Platforms (FB.US), seems to think that the crypto winter has arrived.

However, Nadya Ivanova, chief operating officer of L’Atelier, a technology research firm affiliated with BNP Paribas, said she does not believe the crypto winter is over, but the market is “now in a cooling off period.” It might not be that bad, she said.

Ivanova noted: “Over the past year, especially with all the hype in this market, many developers seem to be distracted by the easy gains of speculating on NFTs (non-fungible tokens) and other digital assets. A cooling-off period is actually Could be an opportunity to start building market fundamentals.”

The rout of cryptocurrencies has been accompanied by a slide in global stock markets. The participation of large institutional funds means digital assets are becoming more intertwined with traditional markets, many experts say.

The S&P 500 has fallen 8% since the start of the year, while the tech-heavy Nasdaq is down more than 12%. The correlation between Bitcoin’s performance and the S&P 500 has been rising recently.

Traders worry that possible aggressive monetary tightening by the Federal Reserve will drain liquidity from the market. The Fed is considering making these moves to combat soaring inflation, which some analysts say could lead to the end of an era of cheap money and high valuations -- especially as tech stocks benefit particularly from lower interest rates, largely due to companies Usually borrowed funds to invest in their business.

"I think it's related to the rout and withdrawal of risk assets in general," Ivanova said of Bitcoin's recent losses.

A dip in major digital currencies has been a boon for stablecoins, or digital currencies that track the value of sovereign currencies like the U.S. dollar. The market capitalization of the world’s second-largest stablecoin, the U.S. dollar, has increased by $5 billion since Sunday, according to CoinGecko.

Vijay Ayyar, vice president of corporate development and international operations at cryptocurrency exchange Luno, believes that the recent plunge in cryptocurrencies is more of a “correction” than an ongoing downturn. He believes that Bitcoin typically sees “blow-off tops” before plummeting by 80% or more. This is a technical indicator showing a sharp increase in price and volume followed by a sharp drop in price.

"Bitcoin's correction is usually in the 30-50% range, which is where we're at right now, so it's still within the normal correction range," Ayyar said.

Looking ahead, Ayyar believes that the key point to watch for Bitcoin is $30,000. He pointed out that a close below this level for a week or more would definitely mean a bear market is likely to come. If Bitcoin’s price fell about 80% from its recent highs, it would trade below $15,000, which Ayyar doesn’t think will happen.

Still, investors are concerned about the prospect of further regulatory blows to the crypto industry. Last week, the Central Bank of Russia proposed a ban on the use and mining of cryptocurrencies. Additionally, the U.S. government is reportedly preparing to release a strategy to regulate cryptocurrencies as early as next month.

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