Crypto Winter is Coming

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Victor joins Tom and Tony to discuss the potential for Crypto to make a comeback. Tom asks if the death of high beta stocks and Crypto has been greatly exaggerated. Victor somewhat disagrees - the end of anything that wasn't strong enough to survive that takes a nominal cost of money was probably built on a faulty premise. When there is no economic incentive and asset class, is anyone surprised by the death throes? Tom disagrees. Like a Rising Phoenix, could this be the start of some of the most valuable companies in the world, just as we saw after the dot.com bust in 1999/2000? That was the start of Google, Facebook, Apple, and so on. Is Crypto just going through growing pains? Could there be a good outcome for this industry even after the carnage? Is the winter coming for cryptocurrency? 

 

 

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Bitcoin, Ethereum, and Alt-Coins: A Brief History of Crypto Winters

Jun 14, 2022 | DailyFX
Research, Research Team

 

Bitcoin, Ethereum and Alt-Coins: A Brief History of Crypto Winters

At the end of the summer, 2021, reports coming from Coinbase showed the leading crypto exchange was putting together a nearly $4 billion “war-chest” in the event of a crypto winter. A few months later, Bitcoin’s price halved.

Crypto is known for its volatility, and that’s a part of its appeal, but crypto’s last boom and bust cycle saw the market essentially dry up for four years. Comparing crypto’s first boom back in 2017 to its most recent one could reveal whether or not we’re bound for another long, cold, crypto winter.

2017

The macro backdrop of the 2017 boom started with three letters: I.C.O. The recently launched Ethereum blockchain inspired many to use the tech to create their own de-regulated securities.

The promise of “buying the future” and the lack of regulatory oversight flooded the market with coins for startups with incredibly high probabilities of failure.

Within a few months, though, liquidity dried up. The year 2017 could have been an anomaly, until the 2020 boom rapidly changed the state of play for crypto.

2020

Each of the booms were propelled by massive speculative hype, but 2020 saw a stronger fundamental backdrop than 2017. It was a boom that was still largely based on speculation, but between stimulus and institutional adoption, major crypto currencies gained legitimacy.

A common thesis that was propping up bitcoin specifically was that because there was a fixed supply of bitcoin, it could act as an inflationary hedge, similar to gold. It didn’t take long for this to change during a downturn.

Bitcoin’s price correlation to inflationary hedges quickly became fiction, with Bitcoin and other crypto currencies prices most closely correlated to indices like the NASDAQ and S&P500.

THE FUTURE OF CRYPTO WINTERS

The macro outlook for crypto isn’t stellar through the next 2022. Bitcoin’s decoupling from inflationary assets and new-found price correlation to indices like the Nasdaq or S&P500, are a solid indicator that the market sees cryptos as high-growth tech stocks. We have an entire article on meme stock traders and why at this stage in the cycle, those with tech-heavy portfolios will likely need to rebalance.

Even with crypto’s macro challenges, the crypto winter we’re in now doesn’t seem like it’ll be as cold and long as the last cycle.

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DISCLOSURES

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‘Crypto Winter’ May Worsen if Bitcoin Falls Below $20,000

Jun 17, 2022 | DailyFX
Tammy Da Costa, Analyst

BITCOIN, ETHEREUM OUTLOOK:

• Bitcoin prices and Ethereum edge slightly higher despite waning sentiment
• USD strength supports USDC Stablecoin
• Technical levels continue to provide support and resistance for price action

 

RECESSION FEARS REMAIN A KEY CATALYST FOR RISK ASSETS, BITCOIN AND ETHEREUM EDGE SLIGHTLY HIGHER

After posting its largest losing streak since 2014, Bitcoin is finally in the green, trading slightly above the $20,000 handle.

As the critical psychological level remains key for bulls and bears alike, a resurgence in recession fears and monetary policy have proven to be major catalysts for Bitcoin, Ethereum and their alt-coins counterparts.

While Central Banks remain fixated on decade-high inflation, a brief recap of interest rate decisions that took place throughout the week include:

• A 75 basis point rate hike from the US Federal Reserve (the sharpest increase since 1994)
• A 25 basis point rate hike from the BoE (Bank of England)
• An unexpected 50 basis point rate hike from the Swiss National Bank (the first hike since 2015)

With the hawkish narrative weighing on sentiment, the massive sell-off in digital assets was further exacerbated by mounting insolvency risks for Celsius (a cryptocurrency loan company) as well as the decision to reduce the Coinbase workforce by 18%.

BITCOIN KEY TECHNICAL LEVELS

After trading within a tight range, formed by key Fibonacci levels from the 2020 – 2021 move (purple) and the Dec 2020 – Jan 2021 move (blue), the release of the US CPI report last Friday enabled bears to gain traction, driving prices back towards the $20,000 handle, which continues to hold as critical support while volume remains high, suggesting that sellers continue to dominate price action, at least for now.

Bitcoin (BTC/USD) Daily Chart

Chart prepared by Tammy Da Costa using TradingView

While prices continue to trade at an 18 month low, Bitcoin has shed over 70% of gains (YTD). For bulls to drive prices higher, a break of $22,000 and the $22,802 retracement could see a potential retest of $24,000.

However, if bearish momentum holds, a break of $20,000 could bring $18,000 into play, opening the door for the Dec 2020 low at $17,580.