Is This Time Different: BTC Slides Under 2017 Cycle Peak
The price of Bitcoin (BTC) performed in a historically novel way. So far, BTC only expanded from its humble trading beginnings, when its first rallies happened under $100. This meant BTC never dipped under the peak from its previous bull cycle.
This changed over the weekend, as BTC sank below $19,700, which was the highest registered price during the late 2017 bull market. In a more dramatic downward move, BTC sank under $18,000 briefly before recovering above $20,000 early on Monday.
Is the Rainbow Chart Invalidated
At the current price, BTC quickly entered the “fire sale” category based on the Rainbow Chart model. However, the recent price dip and extended bearish sentiment raised fears that this model, like the P2E prediction chart, could be invalidated.
BTC has been retrofitted to multiple charts, but its price action remains overall unpredictable as the asset still finds its meaningful presence among financial instruments.
This time, BTC is presented as a buying opportunity, while still having extremely bearish outlook. The Crypto Fear and Greed Index keeps making all-time lows almost every day, and was down to six points over the weekend. This level has not been reached even during the pandemic panic of 2020, when on March 15 BTC briefly dipped under $4,000.
The biggest problem about BTC is that this time, both stock markets and macroeconomic conditions look less favorable. Central bank decisions move into hawkish interest rate policy after more than a decade of monetary loosening of liquidity.
At the same time, there are some expectations BTC may be going through a temporary bear market and a shift in what is permitted in crypto trading. The latest bull market brought additional leverage hidden in the form of DeFi, which came to light after the crash of Terra LFT and the LUNA and UST assets.
Will BTC Regain Value
BTC got a boost from a market where multiple projects tried various forms of leverage. The creation of alternative stablecoins amplified the power of the new wave of crypto projects. This time, some projects hinged on BTC to preserve its value and work as a convincing collateral.
The current price slide follows unprecedented crashes in over-leveraged structures, with the latest liquidations affecting Three Arrows Capital. The 2022 crash follows a scenario from 2018 when BitConnect had a similar moment of panic. BitConnect also had a significant BTC stash, but still the owners of tokens were left with nothing.
Spot Traders Taking BTC Losses
The BTC market is a mix of holding onto coins and attempting to sell with a view to much lower market prices. At best, a renewed BTC bull market would cause current holders to sell and attempt to buy lower.
Glassnode registered peak selling, with realized losses. This time, the capitulation event led to a mix of rapid selling and still, coins being taken off exchanges. The biggest uncertainty is whether BTC would manage to recover or cause too much damage and sink much lower.
A consensus is forming around the expectation that this year’s lows are not yet in, and would arrive after Q3 and more capitulations. Extreme predictions see BTC revisiting $15K in the short term, based on Celsius collateral positions. In the longer term, cycle bottoms range between $10K and a dip under $7K.
The biggest problem for BTC is that it may not lead to price expansion unless new leverage is introduced. Currently, even leveraged trading is more cautious. Even with more than 72K USDT in circulation, the price is not rallying.
Additionally, altcoins and Ethereum (ETH) are raising even more doubts on their value proposition. ETH sank under $1,000, leading to additional liquidations in DeFi and an overall drop in collateral value. ETH later recovered above $1,059, though the value locked in DeFi fell to a notional level of $37B, down $2B in just days.
The tools of leverage in DeFi have also proven almost invisible for mainstream investors. The creation of stablecoins or other types of value through loans is mostly non-transparent and difficult to discover for retail investors.
This way, hubs like Celsius were willing to promise growth with very few details on how their funds would ensure profitability. With the unraveling of crypto credit, remaining stablecoins will have to support the market.
The latest bull market led to exploitable disparities of value, including a mismatch between purely crypto markets and the vlue of GBTC shares. This led to attempts to make profits on the disparities, which were not visible to all investors.
Because of the higher dollar prices of BTC, all wallets are counting losses on paper, from small-scale retail to big whales. The last month saw a rush to acquire 1 BTC with a long-term outlook, but the rapid market unraveling is catching even true believers in a stressful situation.
During the latest dip, only 49% of supply was in profit, close to historical markers for a market bottom. However, this indicator may also break down as the current valuations are much higher and the potential losses may have more impact.
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