Crypto winter has entered its ninth week and bitcoin cannot shake the chill.
From technical indicators to trading volume, market indicators are flashing red or amber for the largest cryptocurrency, which has lost a third of its value in just two months.
So what now?
Bitcoin’s finite history isn’t much evidence of crypto winters, which we define as a long-term downtrend for a month or more.
There have been five since 2017 and three since 2021. Two incidents last year lasted 14 and 10 weeks and caused bitcoin to lose 45% to 47%. If typical, bitcoin’s most recent drop – down 36% in eight weeks – still has a way to work.
“Bitcoin is not attractive to retail investors at the moment. Nobody really sees Bitcoin going to give 10 times (the return),” said Joseph Edwards, head of financial strategy at fund manager Solrise Finance.
In fact, the overall background is far from supportive of an asset class that is now strongly viewed as volatile and risky – as well as at risk in the face of inflation. As concerns about global price hikes and geopolitics bring US stocks closer to confirming a bear market, cryptocurrencies are not on anyone’s shopping list.
However, even in the icy wilderness, there are some indications that the Crypto King is plotting his return.
Bitcoin draws its strength from the rest of the cryptocurrency market, for example, and its relative position provides some relief to investors fleeing altcoins like stablecoins deemed too risky after the TerraUSD crash in early May.
Bitcoin’s dominance, a measure of the ratio between the market capitalization of the rest of the cryptocurrency markets, has jumped to a seven-month high of more than 44% even as its price plummeted.
“Institutional investors in particular are fleeing to safety, to some extent, to bitcoin, which has the most institutional adoption,” said Marcus Sotirio, an analyst at UK-based asset broker Global Block.
Last week, CFTC data showed that bitcoin futures saw their largest net long position since the contract was launched in 2018, indicating that traders are seeking to increase the price of the cryptocurrency.
Fear and greed
Bitcoin has lost half its value since the November 10 peak at $69,000. This week, it is shedding $30,000, after touching a 17-month low of $2,5401 on May 12. It is still the largest digital asset by market capitalization, but the market capitalization of all cryptocurrencies now stands at $1.3 trillion, less than half of $3. Trillion peak in November.
Data platform Coinglass’s Bitcoin Fear & Greed indicator of market sentiment – with 0 denoting extreme fear and 100 being extreme greed – is hovering at 13.
Ether, the second token by market capitalization, has hovered near the $2,000 mark, and is down nearly 60% from the $4,868 peak on November 10.
Bilal Hafeez, CEO of Macro Hive Research, cited $2,300 and $2,500 as key levels and warned that a failure to stay above any of these near-term signs would be a bearish signal.
The cryptocurrency market is subject to complacency.
Total spot market volume for all cryptocurrencies on major exchanges has fallen to $18.4 billion as of Monday — less than half the $48.2 billion on May 14, which was the largest volume of 2022, according to news and research site The Block.
Blockchain analytics firm Glassnode said on May 9 that bitcoin at $33,600 is putting 40% of investors underwater in their holdings.
“It left a lot of people wondering what they should do with their coins – keep holding on to their dear life or book losses and move on?” Lindsey Bell, chief markets and money strategist at Ally Invest.
“It’s a good reminder that cryptocurrency probably shouldn’t be more than, say, 1-2% of your wallet.”
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