How a Bitcoin Market “In Extreme Fear” Compares to the Past and What to Expect Next

Stablecoin USDTerra, or UST USTUSD,
once among the 10 largest cryptocurrencies by market capitalization, lost its 1-to-1 peg against the U.S. dollar, falling to 6 cents on Friday, according to data from CoinDesk. LUNA LUNAUSD,
another cryptocurrency backing UST, fell to near zero from over $80 in early May, with its market capitalization shrinking by over $40 billion since early April.

It marks “the biggest wealth-destroying event in the short history of crypto markets,” since the inception of bitcoin in 2019, crypto trading firm QCP Capital wrote in a Friday note.

Explain : Why is UST, LUNA crashing? The Collapse of a Once $40 Billion Cryptocurrency, Explained

Meanwhile, bitcoin BTCUSD,
Thursday fell to $25,402, the lowest level since December 2020, before rebounding to around $30,000 on Friday, according to data from CoinDesk. Bitcoin’s fear and greed index is currently at one of its lowest points, indicating extreme fear.

USDTUSD tether,
the largest stablecoin, briefly fell to 96 cents against the dollar on Thursday, before bouncing back to $1.

More … than 400 billion dollars has been wiped out of the crypto market in the past seven days, according to CoinGecko. All sectors of the crypto space recorded double-digit losses during this period, with cryptocurrencies linked to Web 3, the so-called next generation of the Internet, posting the largest loss of 41% on average , according to Messari analysts.

The series of events could herald the start of another “crypto winter,” an industry participant said, echoing a common theme this week on Twitter.

Some are more optimistic. ” It’s a model. When you look at what happened in 2014, the crash happened and there was great panic. People say, oh, crypto is dead. It doesn’t come back. But of course it came back,” Mike Belshe, founder and CEO of crypto infrastructure provider BitGo, told MarketWatch in an interview.

Admittedly, the industry is still nascent and poorly regulated, while the crypto market remains volatile with high risks.

Bitcoin withdrawal

At a Thursday low of $25,402, bitcoin was down 63% from its all-time high of $68,990 in November. The percentage decline is higher than the 54% drop from the July 2021 cycle high, but lower than other bear markets.

The chart below shows Bitcoin’s previous pullback from each cycle high.

glass knot

In March 2020, bitcoin was down 77% from the peak of the cycle, according to data from Glassnode. In the January 2015 and December 2018 bear markets, bitcoin capitulated to lows of 85.5% and 83.8% from local highs, respectively, according to data from Glassnode.

Market low?

Some have said that bitcoin is approaching a “generational cyclical bottom”.

Bitcoin’s Thursday low is near its realized price, the aggregate cost base of on-chain investors, which currently stands at $24,000, wrote Will Clemente, chief analyst at Bitcoin mining firm Blockware Solutions, in a Friday note. “Any price below the realized price should be considered extreme value,” Clemente wrote.

Historically, anytime the price of bitcoin approached the realized price, it indicated a buying opportunity, Clemente told MarketWatch in a recent interview.

It’s also worth watching bitcoin’s 200-week moving average price, which typically points to a cyclical bottom, Clemente said. It is currently sitting slightly above $21,500.

Yet, great uncertainties remain in financial markets, as evidenced by equity price movements.

Lily: Despite the rebound, the S&P 500 is hovering dangerously close to the bear market. Here’s the number that matters

“I think this is just the beginning of a continued decline in crypto,” Jay Hatfield, chief investment officer at Infrastructure Capital Management, told MarketWatch in a recent interview.

Hatfield attributed bitcoin’s strong performance in 2020 and 2021 in part to the Federal Reserve’s quantitative easing policy. “We had an unprecedented increase in Fed liquidity, buying $120 billion a month of securities. And now we will have an erratic change to a reduced liquidity for $95 billion a month,” Hatfield said.

“The Fed hasn’t even started quantitative tightening. They just said they were going to do it,” Hatfield said.

Hatfield estimated that bitcoin could fall to $20,000 by the end of this year, and said that in the worst-case scenario, it could return to its pre-pandemic level of around 10,000. dollars. “I’m not predicting we’ll get there, but $10,000 would be a reasonable goal,” Hatfield said. Hatfield compared bitcoin to Cathie Wood’s flagship Ark Innovation ETF ARKK,
which is down more than 70% from its peak and around the same level in March 2020.

Lily: As Ark’s flagship fund plunges 76% from its peak, Cathie Wood still views its shares as residing in ‘deep value territory’

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