Bitcoin Believers Stay the Course as a Bear Market Looms

31 Jan, 2022
Bitcoin Believers Stay the Course as a Bear Market Looms

Crypto Crash? Crypto Winter?  Bitcoin Bear Market?

Long-term traders have been around this block before.  And based on Bitcoin’s performance this month - where some are pointing out that the price of BTC has now come closer to $0 than the all-time-high of more than $69,000 – it’s hard to believe the world’s first digital currency will turn around anytime soon.

That is, of course, if you’re in the market for the short term.

“A prolonged bear market is in play,” on-chain analysts at Glassnode said in its Week 4 newsletter. “With the bulls now firmly on the back-foot, such a heavy drawdown is likely to change investor perceptions and sentiment at a macro scale.”

Newbies Sell Coins at a Loss

As with any investment, those who jump in when a market heats up are often those who jump out when things go awry. Short-term holders, who reportedly directly held about 18% of the market supply are selling at a loss.

“As of this week, almost all of their supply is underwater, which could put further pressure on prices,” Glassnode said.  “This yet again creates a psychological barrier whereby the coins that are already the most likely to be spent and sold, are now also holding an unrealized loss, which further increases the chances of a sale.”

U.S. Federal Reserve Adds to the Uncertainty

While Bitcoin believers have touted the world’s first digital currency as a hedge against inflation, it can no longer be denied that the coin’s price continues to be influenced by the traditional fiat market.

At a Wednesday meeting of the central bank committee, Federal Reserve Chairman Jerome H. Powell confirmed what market makers had been speculating: interest rates would soon rise. “I would say that the committee is of a mind to raise the federal funds rate at the March meeting, assuming that the conditions are appropriate for doing so,” he said.

The news drove an already down stock market further down and cut short a Bitcoin rally.

“After briefly appearing to decouple from risk-sensitive stocks, Bitcoin, Ethereum, and its crypto cohorts ended Wednesday's whipsaw session in the red, along with Wall Street,” YahooFinance said. “The reversal signaled the correlation with equities was not likely to end anytime soon, especially with the Fed poised to hike interest rates as early as March.”

Pending US Executive Order Is Causing Market Concern

News began heating up this week that U.S. President Joe Biden is expected to release an Executive Order on cryptocurrencies.

“The executive order is expected to outline economic, regulatory and national security challenges posed by cryptocurrencies and would call for reports from various agencies due in the second half of 2022—potentially looking at the systemic risks of cryptocurrencies and their illicit uses,” Forbes reports.

“According to an administration official, the forthcoming National Security Council (NSC) memorandum will task federal agencies to assess the risks and opportunities that crypto poses and delve into the details of a central bank digital currency,” YahooFinance said.  “The move will also review the impact of digital assets on financial stability, and normalizing regulations for crypto with other countries.”

The move is seen to be yet another sign that, despite the growing mainstream adoption and acceptance of cryptocurrencies, Bitcoin and altcoins are still far from being eyed as totally legitimate.

“The rationale for the executive order falling under national security is that crypto is a cross-border tool for shifting money,” Cointelegraph reports.  “The ability of decentralized blockchain technology to circumvent geo-specific surveillance or rules means the administration may push for synchronized international regulations with other countries.”

On the positive side…

For all the doom and gloom being pumped out by mainstream media outlets, there are signs that this downturn is just that – just another steep up and steep down that has typified the Bitcoin market since the coin was launched.

“By standard measures of value, the prices of Bitcoin and Ether are understandable,” The New York Times said this week, giving a nod to the number one and two digital currencies.  “They are priced highly — with market capitalizations on Wednesday of nearly $690 billion and $290 billion — because they are well established and liquid, with broad user bases. Bitcoin is held in nearly nine million wallets, according to Chainalysis, a data provider.”

Bitcoin to $1 Million by 2030?

In its Big Ideas 2022 report, ARK Investment Management remains bullish on Bitcoin, noting its market value exceeded $1Trillion in 2021. The firm also reports that Bitcoin is “taking market share as a global settlement network” as its cumulative transfer volume increased by 463% in 2021, surpassing that of Visa.

“Bitcoin’s market capitalization still represents a fraction of global assets and is likely to scale as nation-states adopt as legal tender,” the report said. “According to our estimates, the price of one Bitcoin could exceed $1 million by 2030.”

So, what comes next? Bitcoin believers will likely stay the course. Those who put their toe in the water only to find it’s too cold for comfort will probably remain on the sidelines for the short term. But for all the doom and gloom, positive signs remain as governments and central banks continue to pay attention to this emerging market. And experienced investors are still in the game.

“What we identified this week are significant realised losses, a steep drawdown, a return to HODLer led accumulation, and top buyers taking any opportunity to get their money back,” Glassnode summarized.  “If it looks like a bear, and walks like a bear, it could very well be a bear. But as with many things over the last two years...could this time different?”

Joyce Pavia Hanson