Are We Now in a Crypto Winter? Here’s What To Watch Out for
2022.05.12 19:06
Are We Now in a Crypto Winter? Here’s What To Watch Out for
- The current bear market might last for 9 months up to 1 year.
- Stablecoins are experiencing a difficult test.
- The bottom is hard to predict, although a bounce might happen soon.
The ongoing 2022 bear market continues to lay waste to all cryptocurrencies, including non-fungible tokens (NFTs) and the decentralized finance (DeFi) market. Many attribute the crypto winter to the ongoing months-long conflict between Russia and Ukraine, as well as the US Federal Treasury’s newly-imposed interest rate hikes.
However, the crypto space would be remiss if it did not take into account the Terra (LUNA) and TerraUSD (UST) tragedy and its impact on the larger market. Technical analysis-wise, Bitcoin’s weakening market sentiment has lost the confidence of many regarding its claim of becoming a better hedge against inflation and volatility.
So, what are the scenarios that might come into play in the near future? Is it time to exit the crypto market for good, or must people invest further without knowing how low the prices will go?
Bear Market Might Last for 1 Year Minimum
A lot of things are not certain today, but there is one thing that many can expect: the bear market might last for at least a year.
BTC/USDT 1-day chart from 2018 to 2021
Today’s crypto winter is reminiscent of the 2018-2019 bear market, where Bitcoin and major cryptocurrencies tanked after a euphoric run in late 2017. So far, this has been one of the most memorable bear markets due to its length and its impact on the crypto space as a whole.
Many people may remember that Binance was a newbie during this time, although it had a successful initial coin offering (ICO). In addition, the whole world was just waking up to a new financial environment where cryptocurrency was more than a mere buzzword.
Those who bought their first bitcoin at the top witnessed their portfolio lose its value to as low as $3,000 per BTC. In short, the 2018-2019 bear market was brutal and bloody.
While the current crypto winter has a lot of differences from the previous one, there is reason to believe that the public sentiments are identical. Having failed expectations of a $100,000 run, Bitcoin is now languishing at less than $30,000. Ethereum and Binance Coin are also at $1,900 and $260 respectively, which are prices not seen since July 2021.
Meanwhile, LUNA may have met its demise, as it is worth $0.05 at the time of writing – practically worthless now compared to its ATH of $119 just one month ago.
Given the current predicament, it would be difficult to find a bull run case in the next couple of months. It will take around 9 months to at least a year for the market to get back on its feet once again.
Stablecoins Are Under a Crucible
Stablecoins are also suffering huge blows. UST price is currently less than $.50, although there have been a lot of explanations as to the cause of this phenomenon. Moreover, UST is an algorithmic stablecoin, which means that it is not really backed by any real-world asset.
However, even asset-backed stablecoins are not exempted from the market bloodbath. Specifically, Tether (USDT) went as low as $0.98, which is uncharacteristic. This caused Tether to tap a third party to perform a chain swap from Tron TRC-20 to Ethereum ERC-20 for 1 billion USDT, and from Tron TRC-20 to Avalanche ARC-20 for 20 million USDT.
The above-mentioned chain swap was to balance the minted USDT tokens across different blockchain networks. In the last 24 hours alone, Tether has recorded a transaction volume of around $175 billion.
While other stablecoins like Circle USD (USDC) and Binance USD (BUSD) appear stable enough, the fact remains that this crypto asset class is under huge pressure due to intense capitulation. It will also take more time before the situation becomes stable again for stablecoins to have a breather.
The Bottom Is Hard To Predict
While most cryptocurrencies are at a huge discount right now, it will be hard to predict how low the market will go. Leading altcoins like XRP, ADA, DOT, and AVAX are very cheap, and many would be tempted to make an entry.
Traders and investors need to exercise caution, however, since there’s no telling what the bottom will be. For those familiar with the market cycle, many would agree that most cryptocurrencies are in the distribution phase. During this stage, people will try to exit their positions, leading to a continuous sell-off.
Moving forward, the current condition is considered an uncharted territory, especially for those who just started to invest in cryptocurrencies. It would be good to consider both fundamental and technical analyses for anyone to come up with a more sound investment strategy.
A Bounce Could Happen Soon
On a positive note, there’s a possibility of a bounce in a week or two. Traders who are looking for a quick profit may anticipate the bounce and enjoy juicy rewards despite a bleeding market.
BTC/USDT 1-week chart with 5-wave, 3-wave movements (source: TradingView)
As seen on the chart above, Bitcoin has displayed a 5-point movement recently. In addition, there’s a possibility of another 3-point movement soon, in which Point A has been identified already.
Since there has been a lot of capitulation and with so much selling pressure, the market can expect a correction up to $55,000 (if the market is generous). However, it would be a long shot to claim that the upward recovery will hold. There’s a higher chance to make another descent should the market fail to retake previous support levels.
Disclaimer: The views and opinions expressed in this article are solely the author’s and do not necessarily reflect the views of CoinQuora. No information in this article should be interpreted as investment advice. CoinQuora encourages all users to do their own research before investing in cryptocurrencies.
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