Thought Leaders are articles that are contributed by respected members of the fintech & digital assets community. They may or may not necessarily reflect the views held by the Securities.io team.
2022 is shaping up to be a difficult year for the cryptocurrency landscape. Fresh from new all-time highs of $69,045 as recently as November 2021, bitcoin has fallen more than 70% from its peak in a matter of months. For many investors, there’s a belief creeping in that we’re entering a ‘crypto winter’, but whilst this indicates prolonged periods of low growth, more speculative onlookers view it as an opportunity to buy in at a discounted price. So, when will the BTC bottom arrive?
If there’s one certainty in the world of cryptocurrencies, it’s that it’s foolish to make predictions in such a volatile and sentiment driven space. Bitcoin’s price movements can be tracked, but they are profoundly difficult to predict over prolonged periods.
Despite this, we do know that bitcoin has pre-programmed cycles that have formed patterns throughout its 13-year history. This cycle was prompted by a halving event that bitcoin undergoes approximately every four years whereby the volume of rewards given to miners is halved – thus increasing its scarcity.
As the data above shows, bitcoin’s most recent halving event took place in May 2020, and prompted a series of rallies one year on that saw the world’s most famous cryptocurrency far surpass its old all-time high – $19,783 posted in December 2017.
We can also see that each post-halving rally ultimately gives way to a sustained period of negative growth, whereby bitcoin typically sheds much of its accumulated value. This has become known as ‘crypto winter’, and the widespread market downturn is typically a long-term – but not terminal – series of very little trading volume and very few positive price movements.
With bitcoin’s next halving event, and fresh hopes for a new period of prosperity and fresh all-time highs, scheduled for 2024, it’s now that investors may be looking to buy the BTC bottom in order to accumulate in anticipation.
Given that investors across the entirety of the financial market have struggled in 2022 due to the severity of global inflation rates, the onset of war in Ukraine, and further supply chain issues disrupting industry, some prospective buyers may believe that we’re currently close to bitcoin’s lowest price. However, other commentators fear that the worst is yet to come.
Could Bitcoin Sink Lower?
One strategist has tapped into more trends surrounding bitcoin to deliver a more bearish outlook for the short-term future of the cryptocurrency.
In observing how bitcoin performs following its peaks as it descends into a crypto winter, Ian Harnett, co-founder and chief investment officer of Absolute Strategy Research, has speculated that the asset could drop as low as $13,000 in a move that would retrace virtually all of the coin’s price accumulation since October 2020.
Harnett notes that past cryptocurrency rallies have resulted in harsh price falls of around 80% from all-time highs. At a value of $20,000 at the time of writing, this would mean that bitcoin can fall a further 40% in the future.
“It really is a liquidity play. What we’ve found is it’s neither a currency, nor a commodity and certainly not a store of value,” Harnett explained. “In a world where liquidity is plentiful, the bitcoins of this world do well. When that liquidity is taken away — and that’s what the central banks are doing at the moment — then you see those markets come under extreme pressure.”
However, it’s also important to note that bitcoin’s peak following its third halving event was far less emphatic than those before it – indicating that the coin’s volatility, whilst certainly very much present, may be calming in comparison to recent years.
Given the rate of institutional adoption that bitcoin experienced throughout 2020 and 2021 as major corporations like Tesla and Microstrategy became major adopters whilst key financial players like Visa, PayPal, and Revolut sought to adopt crypto, it may be the case that bitcoin has been anchored by these global entities – paving the way for less-pronounced price rallies and declines.
With an ever growing repertoire of stock trading platforms working to accommodate more cryptocurrency options than ever before, there are far more avenues for investors to explore when incorporating more crypto into their portfolios, too.
Reasons to be Bullish
In a vastly sentiment-driven market, we may see higher volumes of investors opting to take more contrarian approaches to crypto. As sell-offs populate the market at present, it’s likely that we’ll soon see a widespread shift in sentiment as the value of BTC/USD becomes more attractive.
As more investors buy in, we’ll see their followers FOMO in to avoid missing out on what they believe would be a strong entry point.
Chris Brendler, senior equity analyst at D.A. Davidson Companies believes that the bottom may well be close, judging by the perception that, whilst $70,000 may be too high as a value for bitcoin, $20,000 is a low price to purchase one BTC.
Brendler’s conclusion stems from various metrics central to bitcoin and the wider cryptocurrency market, including transaction volumes, users, and the sheer size of the bitcoin network.
“The levels of activity and the political, corporate and institutional landscape being so bitcoin-friendly and more willing to at least listen today makes me think it’s close to a bottom,” Brendler noted. “But you never know.”
Brendler’s warning about the unpredictability of the cryptocurrency market is worth heeding for investors looking to buy the bitcoin bottom. It’s important to note that crypto winters can last for a long time, and should BTC keep to its historical cycles, we may need to wait until 2024 to see a reasonable market recovery.
Despite this, there are still plenty of reasons for investors to engage in the crypto market, and time may tell whether there are currently a strong selection of bargains for investors to pick up.