The cryptocurrency market is going through a terrible upheaval this week, along with the traditional stock market. As bad as it sounds, experts say Cryptoslate that the worst is not over yet.
Russell Thomson, CEO of digital asset management company LibertyRoad Capital, told Cryptoslate in an interview:
“There’s no bottom signal yet. And we have to put a fund in place for this market to recover.”
In short, things have to get worse before they can get better.
Bitcoin (BTC) is currently trading at around $ 20,500, a 18-month low, more than 70% from an all-time high of $ 69,000 in November 2021, according to Cryptoslate data.
Ethereum (ETH), the second largest cryptocurrency, is trading above $ 1,100, 76% below its all-time high of more than $ 3,200 in February 2022.
What caused the accident?
Some reasons have directly contributed to the current fall in cryptocurrency prices.
First, sales in the cryptocurrency market began when US inflation data was released. UU. on June 10, said Marcus Sotiriou, cryptocurrency analyst for global asset broker GlobalBlock Cryptoslate in an email.
Inflation in the United States reached 8.6% in May, a 40-year high. Rising inflation was partly caused by rising oil prices due to the war between Ukraine and Russia and affected countries around the world.
Meanwhile, inflation in the eurozone hit an all-time high of 8.1% in May and central banks across the region raised interest rates on 16 June.
The U.S. Federal Reserve announced on June 15 the largest rise in interest rates since 1994 to combat ongoing inflation, anticipating a recession in the coming months. This will reduce liquidity as all forms of borrowing become expensive.
The US inflation announcement dropped shares: the S&P 500 fell more than 7% while the Dow index fell more than 6% in 5 days. Nasdaq also fell 4% since the announcement.
But what does the fall in stocks have to do with cryptocurrency? The cryptocurrency market is increasingly related to the traditional financial market. This means that when stocks go down, so do cryptocurrencies.
“I think so [inflation] it is a major contributor to the decline we have seen, as it results in a more aggressive Federal Reserve; they are now forced to remove more liquidity from the market to reduce inflation.
When liquidity is eliminated, risky assets are the hardest hit, which includes cryptocurrency.
Cryptocurrencies are risky assets and therefore the first to be sold during times of liquidity crisis and hardship.
To make matters worse, Celsius, one of the largest cryptocurrency lenders with more than $ 11.8 billion in assets since May, stopped withdrawals and transfers on June 13th.
According to Sotiriou:
“Cryptographic markets are falling in part due to the risk of insolvency of one of the largest Celsius lending platforms, after it was widely speculated that they were irresponsible with customer funds.”
There have been claims that Celsius, despite his refusals, may have had an exposure of up to $ 500 million at UST, which collapsed in early May.
In addition, about $ 1.5 million of its assets are tied to stETH in the Beacon chain and with the stETH trade at a discount to Ether. Sotiriou said there are concerns that:
“If customers try to rescue positions, Celsius will run out of cash to return them.”
Staked Ether in Lido is supposed to trade 1 to 1 with Ether, but its price may vary depending on market demand.
Similarly, there is Three Arrows Capital, which “looks like they are going to file for bankruptcy. They’re definitely in trouble, “Thomson said.
“There are a lot of loans in this ecosystem, which is now under a lot of stress.”
And these lenders continue to add more collateral to avoid liquidation, like Celsius. Despite this added guarantee, if Celsius fails to avoid liquidation, it will be insolvent. Such an event could have a massive impact on the ecosystem, affecting nearly 1.7 million investors.
When will the bear market end?
As Thomson said, the crypto market has to bottom out before it can begin to recover. In line with Thomson, Sotiriou also expects a further drop in cryptocurrency prices. He said:
“I think there may be more disadvantages to cryptography due to the severe impacts of the Celsius liquidity crisis … I think many are afraid that there will be a liquidation cascade with people like Celsius being called out, and they now have a settlement price of about $ 17,000. its BTC position “.
According to Thomson estimates, the price of Bitcoin could fall below $ 17,000 before the recovery begins. He said:
“Our target price [for Bitcoin] it was between $ 17,000 and $ 20,000.
Unfortunately, I think the actual target price is now below that. And the main reason I downgraded it is because of these secured loans on the market. “
However, Thakral said Bitcoin could “reduce support” to the $ 20,000 level, while expecting Ethereum to “sit with fine support” at $ 1,100.
Thomson said the recovery deadline depends on when the market hits the bottom, which could be as early as the week of June 13th. Add:
“We can get this fund this week. It’s possible. It’s much more likely than people think … if that happens, then we could put a fund in and Bitcoin could start moving and disengaging from the Nasdaq.
With the acceleration of inflation and approaching the recession in the US. In the U.S., the market’s recovery will depend on how long the recession lasts and how “deep or shallow” it is, Thomson said. However, he added that if Bitcoin continues to trade in the current range, it could be “weeks or months” before we start to see a recovery.
Sotiriou expects the market to recover around the fourth quarter of this year, which is when it sees inflation fall. But he added:
“I think the bear market could expand by the end of the year, but I think 2023 will be positive for US equities and cryptocurrencies.”
Shivam Thakral, CEO of BuyUcoin cryptocurrency exchange, told Cryptoslate:
“Markets will recover with some relief from inflation and easing interest rates on central banks around the world.
Strict monetary policies are not seen as conducive to business growth and we can expect a prosperous business environment once again with more liberal monetary policies. “
Although experts are still unsure about the exact recovery schedule, everyone is optimistic about Bitcoin in the long run.
Thomson said he expects Bitcoin to reach $ 100,000 by the end of 2023. But the real path to recovery depends on:
“What happens, how fast it happens, how fast the breakdown happens, if we get a fund for the market to recover.”