Bitcoin Q3 2022 Forecast

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Bitcoin Q3 2022 Forecast: Where’s the Bottom?

Jul 3, 2022 | DailyFX
Ryan Grace, Chief Market Strategist - tastytrade

http://image.coinpedia.org/wp-content/uploads/2022/03/12174139/Bitcoin.jpeg

If Q1 was difficult for crypto bulls, Q2 was an absolute disaster… As we head into the third quarter, the macro-outlook is still likely to be challenging for crypto, but we could be nearing a cycle low. Let’s put some perspective around the price action by looking at historical cycles and the current macro setup.

PRICE ACTION

At the time of writing, bitcoin has fallen roughly 70% from its all-time high near $70,000. A devastating move, but certainly in line with how it has historically traded. If bitcoin were a company, a move of this size either presents a tremendous opportunity or we should question its ability to remain in business.

Since inception, bitcoin’s largest drop from peak to trough is -81%, with yearly drawdowns registering an average loss of -50% at the low. For bullish investors with a long-term outlook, the current discount might be attractive, but should history repeat, an 80% loss from the top represents a potential entry point closer to $15,000.

CYCLE LENGTH

Bitcoin’s all-time high occurred more than 200 days ago on November 10, 2021. Compared to historical drawdowns, this cycle has lasted significantly longer than the 117-day average, but short of its worst period on record. During 2018’s crypto winter it took 343 days until bitcoin’s price found a bottom.

If this cycle more closely resembles the 2018 vintage, the selling pressure could last into year-end or later. That said, when the selling does finally end, bitcoin’s price tends to quickly turn around. Historically bitcoin has rallied an average of 69% over the following six months after a cycle low.

PATIENCE IS NECESSARY

Looking at past cycles helps provide context, but I don’t believe anything changes for bitcoin until the macro environment is more constructive.

Bitcoin is a very high beta asset which exhibits a positive correlation to the broader equity market. It’s also inversely correlated to interest rates. Should these correlations remain intact, it doesn’t bode well for crypto, at least in the short-term.

The economy is showing signs of slowing at the same time the Federal Reserve is aggressively hiking interest rates and reducing its balance sheet to bring down inflation. This is a backdrop where I believe it will be difficult for most risk assets to experience meaningful upside, especially crypto.

There will inevitably be relief rallies, but the macro matters now more than ever. Until there’s ultimately a shift in financial conditions (which are aggressively tightening now), it’s difficult to forecast a bottom any time soon.

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Bitcoin Q3 2022 Technical Forecast

Jul 2, 2022 | DailyFX
Paul Robinson, Strategist

Heading into last quarter I was giving BTC/USD the benefit of the doubt that it may rally, but for that to be the case it would have needed to garner a round of fresh interest quickly. That of course failed to materialize as we began Q2, and on that BTC rolled over quickly with risk trends.

BUYING THIS QUARTER

In June, BTC/USD not only broke big support at 28600, but it also fell below the December 2017 high at 19666. However, we saw a weekly close above the 2017 level after bottoming out at 17592. The weekly reversal back above a critical level of support coupled with market sentiment appearing to be on the verge of a broader rebound, BTC should see some buying this quarter.

However, strength is viewed as likely to be transient, as the longer-term forces appear headed to send Bitcoin much lower. But before that develops (nothing rarely happens in a straight line) a rally back to old support around 28600 up to around 30k is seen as having a decent probability. Prior to that big test is a weekly low at 25400 to keep an eye on.

BITCOIN (BTC/USD) WEEKLY CHART

Chart created with TradingView

What happens around former support will be key to watch should price rise to that point. In-line with the broader trend lower it could be the capper on a bounce before another major leg lower develops. The next big level of support to watch below 17592 comes in at 13880, the 2019 high.

The general trading bias is bullish as long as 17592 holds. Trading from the long side may be the way to go until we see former support near 30k tested as potentially a new source of resistance.