"There will be no crypto-winter." Why you shouldn't expect a sharp drop in cryptocurrencies
The bitcoin rate from three attempts could not exceed $20 thousand. In 2017, this began a phase of a long-term decline, as a result of which BTC fell to $3.2 thousand. Now such a scenario is unlikely, experts are sure
Since the beginning of the year, Bitcoin has risen in price by 150%. But the growth slowed down at the level of $20 thousand. The BTC rate could not overcome this level three times, each of the attempts led to a rapid decline. As a result of the latter, the price of the cryptocurrency fell below $ 18 thousand, now it has recovered to $18.2 thousand.
For the first time, Bitcoin climbed to the level of $20 thousand in December 2017. Then the cryptocurrency set its historical price maximum near this value. But then the asset began to fall in price and entered a long-term decline phase. So, by December 2018, BTC quotes fell to $3.2 thousand.
There are several aspects that make the situation in the cryptocurrency market in 2017 and 2020 similar. First, for both periods, the asset showed a multiple rise in price. In 2017, from January to December, BTC rose by almost 2000%. From March this year to the current moment, the motet has added 400% of the cost.
The second aspect is the weakness of the dollar. To combat the economic consequences of the crisis caused by the coronavirus, the US government has chosen a quantitative easing policy, which, through the additional emission of the dollar, leads to a decrease in its value. Because of this, the DXY index, which shows the strength of the dollar against a basket of six leading world currencies, has dropped from 100 to 91 points since May.
Three years ago, the dollar also depreciated greatly. From January to December 2017, the DXY fell from 100 points to 88 points. In parallel, the bitcoin rate increased from $1,000 to $20,000. Then the situation turned around: DXY began to grow and reached 97.5 points by December 2018. The price of BTC for the same period fell to $3.2 thousand. Earlier, the analyst of the Amsterdam Stock Exchange Michael van de Poppe told about the correlation between BTC and USD.
The third aspect is the behavior of miners. In recent days, people and companies that mine cryptocurrency have been actively selling its stocks, as the analytical services CryptoQuant and Glassnode reported several times. A similar situation was observed at the end of 2017. Then, the pressure exerted by the sale of coins by miners on the price of BTC was one of the reasons for the beginning of the long-term decline phase. Later in the community she was nicknamed "crypto winter".
There will be no crypto-winter
Currency.com financial analyst Mikhail Karkhalev believes that the likelihood of a new phase of decline in the cryptocurrency market is low. There is sufficient demand for bitcoin and other coins. There are also no movements on the wallets of large BTC holders. This can be interpreted as investors' expectations of further growth, the expert said. He noted that even the sale of the coin's reserves by miners is unlikely to lead to a deep drop in its rate.
“In my opinion, now the likelihood of a new crypto-winter is low. The price matches the demand for bitcoin from large investors. There are no large sellers on the market, except perhaps miners, but they mined 27.5 thousand BTC in November, while Grayscale Investment alone bought 55 thousand BTC in the same November”, explained Karkhalev.
He added that everything that is happening now in the cryptocurrency market suggests otherwise. A long period of trading in a narrow range with a gradual rise in the price of bitcoin is more likely, the expert said. He allowed the price of BTC to rise to $25 thousand by the end of 2020.
Nikita Zuborev, senior analyst at Bestchange.ru, agreed that there are no prerequisites for repeating the 2017 scenario. Since then, the crypto industry has changed a lot. BTC has regained a significant share of the market - despite the new "DeFi-fever", new investors, including institutional ones, entered the sphere. The expert noted that the rhetoric around digital assets has also improved.
“The fact that Bitcoin failed to break through the psychological mark of $20,000 does not mean a trend change. Yes, the current level is too high, but there are no prerequisites for a deep correction in the market. We assume that the current price decline will not drag on and will not take the asset below $15-16 thousand”, Zuborev said.
According to him, the most negative outlook is a long period of trading at current levels until spring 2021. But the bears in the cryptocurrency market probably won't show up until 2022-23. Zuborev stressed that the next year should be favorable for Bitcoin.
Vitaly Kirpichev, Development Director of TradingView in Russia, also doubted the possibility of a new "crypto winter". He cited an important difference between the current situation and 2017. Then, after reaching a historic price record, massive sales followed, which brought down the market by almost 50% in just a week. This time there was no such drop, the expert noted, now the sale of bitcoins is meeting comparable support from buyers.
“The market fully accepts the current high price as a stable one that suits all participants. Waiting for an instant crypto-winter is an overly negative scenario. Rather, it will be a warm autumn or Indian summer”, Kirpichev said.
Market in a bullish cycle
EXANTE Managing Partner Alexey Kiriyenko also noted that there was no collapse in the price of bitcoin after rising to $20 thousand, as it was in 2017. Now this level does not seem inaccessible as it used to be. But before you can take it, a correction is likely. Therefore, the expert warned about the risk of high volatility and a decrease in the value of the coin, however, the latter may lead to an increase in demand. Additional demand for BTC should also be provided by developing countries and economies that have come under the sanctions.
“In the foreseeable future, we may see another wave of correction, where Bitcoin will receive support from buyers hunting for a discount”, Kiriyenko suggested.
He added that now cryptocurrencies are in demand not only among retail investors - big capital is also interested in bitcoin. Kiriyenko cited MicroStrategy as an example. It has already invested $475 million in BTC, and in December announced that it was going to raise another $400 million for this purpose by issuing convertible bonds.
“By all fundamental indicators, we are in a bullish cycle, and the new phase of growth is unlikely to end at $20 thousands. Bitcoin is supported by institutional and retail investors, miners, halving, as well as problems in the global economy amid the coronavirus and incentives from central banks that lead to depreciation of currencies. Demand from buyers is high, and as long as investors believe in the growth prospects of bitcoin and its protective properties, it will grow, despite corrections and stops”, Kiriyenko said.
Causes for concern
Over the past three months, the price of bitcoin has risen by more than 80%. It is natural that rapid growth can lead to overheating of the market and a protracted correction, Kiriyenko continued. Another reason for the decline may be the strengthening of measures to regulate the cryptoindustry, in particular stablecoins. In early December, a bill was introduced in the US Congress that would make illegal any products and services associated with stablecoins unless they receive regulatory approval.
“Another factor that could lead to volatility in the crypto market in 2021 is increased regulatory pressure on stablecoins, which will make it difficult for traders to close positions”, Kiriyenko explained.
Karkhalev added that an excessive hype among ordinary people, not investors, may become a prerequisite for the onset of a protracted correction and "crypto-winter". When "hamsters" come to the market with money, the price can certainly skyrocket by 100-200%. This is a traditional scenario for a bloated market, that is, for a bubble, but in the case of the crypto market, such a development is now unlikely, he stressed.
“It is likely that there will be no more crypto winter. There will be systematic growth until the next global crisis, 7-10 years, with minor corrections, as, for example, on indices. Institutional money is now on the market, and it is very different from the money of "hamsters", - Karkhalev is sure.
From his point of view, the ban of bitcoin and other coins by states, which could lead to a strong correction in the market, is also not worth waiting for. Cryptocurrencies are now a recognized asset, both legally and psychologically. Rather, a certain legislative channel will be created, within which the digital money industry will develop, this is more than enough for the demand for it to only grow, summed up Karkhalev.