Has the Time to Buy Bitcoin Come?
This is undoubtedly a very common exercise: after a fall as strong as the ones the crypto market has experienced, people start looking at the bitcoin charts, review the oscillators and review different metrics to try to find out, by comparing with past situations, if it could be forming a floor and, therefore, it would be time to invest in Bitcoin.
And it seems that there is good news, since several of the metrics that can be followed in Glassnode or Coin Metrics begin to release some positive signals, something that does not usually happen often. In fact, in the last five years we have only had six other similar moments, some of them coinciding with the lows of the bear market, as happened for example in November 2018 or March 2020. This fact, although we can consider it a relatively small and not very representative sample could be pointing to an incipient market recovery.
The Causes of the Fall
However, there is no doubt that the current environment is clearly pessimistic. So we have that Bitcoin has closed one of its worst quarters in its history, losing 60% of its value between April and June, and standing 70% below the highs it set in November last year, when it reached $69,000. .
Likewise, the spot trading of cryptocurrencies has fallen significantly, going from the 112,000 million dollars that were traded on November 8, when Bitcoin marked its all-time highs, to the 60,000 million that were traded on July 3. For their part, the assets under management that cryptocurrency investment products had in June reached an all-time low, with ETFs experiencing the biggest drop, with a drop of more than 50%, to 1,300 million dollars. .
The factors behind these sharp falls seem clear: on the one hand, we have a Federal Reserve starting a campaign of interest rate hikes to curb inflation, which gives wings to the rise of the dollar against any currency, be it fiat or crypto; on the other hand, a market sentiment very touched by what happened in Terra; and, to top it off, a growing list of cryptocurrency-related companies and services dragged down by the debacle. The latter, by the way, seems to venture important mergers in the sector in the coming months.
Some Metrics for Hope
However, it is not all bad news: for one thing, while activity on the Bitcoin blockchain generally tends to be high during bull markets, it increases even more during market crashes, as participants they are quick to undo their positions. After this discharge of selling volume, the price tends to stabilize near the lows, while the on-chain activity decreases. This would be precisely the situation in which we could find ourselves right now.
On the other hand, generally in bear markets, investors and miners tend to liquidate part of their crypto assets, sending their tokens from their wallets to exchanges to sell them. However, it appears that after the sharp declines in mid-June (which led to a sharp spike in crypto inflows on exchanges), the trend has also slowed. In fact, if we look at the net balance of these flows, we can see that after the price sweep that led Bitcoin to revisit levels below $18,000, there was a strong outflow of cryptos from exchanges, surely caused by those buyers who took advantage of the shock to store cryptos and hold them for the long term.
Also, unlike in 2018, when demand for Bitcoin did drop during that price crash, there are currently no signs that the adoption of the leading cryptocurrency is slowing down, which is a clear sign that Bitcoin fundamentals they are possibly stronger than at any other time in their history. As an example, in the following graph you can see that in the US alone there are already almost 34 million Americans who own cryptocurrencies, of which 35% have Bitcoin in their wallets, something really significant.
However, just because some positive signs are beginning to emerge does not mean that the bottom has yet to be confirmed, and there are plenty of risks. For example, the Fed could become more aggressive if I see that it is not able to control prices, raising rates more intensely, which would cause a new rally in the dollar against all cryptocurrencies.
On the other hand, we have a possible recession on the horizon, caused as a consequence of the current monetary policy measures that try to tame inflation, which could significantly reduce investors’ appetite for high-risk assets, such as the case of cryptocurrencies.
We are possibly right now in one of the most complex and unpredictable moments in our history, especially in economic terms. This is something that cryptocurrencies are certainly no stranger to, since being a high-risk asset, they benefit from economic boom cycles, especially if we take into account the growing correlation they maintain with the Stock Markets. the last months.
However, the current environment of fear and pessimism has notably curbed expectations of short-term gains in the crypto asset market, the truth is that the recent falls and incipient on-chain signals may be a good opportunity to start building a long-term position, although of course this is probably not the time to go all-in, given the current uncertainty we are facing.