The crypto market, along with the traditional stock market, is experiencing dire turmoil this week.Experts said as much as things seem bad CryptoSlate The worst is not over yet.
Russell Thomson, CEO of digital asset management firm Liberty Road Capital, told CryptoSlate in an interview:
“There are no signs of a bottom yet, and we need to bottom out for this market to recover.”
Simply put, the situation needs to get worse before it gets better.
Bitcoin (BTC) is currently trading at around $ 20,500, which is a low of 18 months. It is down more than 70% from the record high of $ 69,000 in November 2021. CryptoSlate data.
Ethereum (ETH), the second largest cryptocurrency, is slightly above $ 1,100 and more than 76% below the February 2022 record high of $ 3,200.
What is the cause of the crash?
Several reasons have directly contributed to the current decline in cryptocurrency prices.
First, the sale on the crypto market began on June 10 when US inflation data was released. Marcus Sotiriou, a cryptocurrency analyst at Digital Asset Broker GlobalBlock, said: CryptoSlate on mail.
Inflation in the United States Reached 8.6% in May — Highest price in 40 years. The increase in inflation is partly caused by the rise in oil prices due to the Ukraine-Russia War, affecting countries around the world.
Meanwhile, eurozone inflation hit a record high. 8.1% In May, regional central banks raised interest rates on June 16.
The Federal Reserve Board Largest rate hike since 1994 On June 15th, we anticipate a recession in the coming months to combat ongoing inflation. This reduces liquidity because all forms of borrowing are expensive.
Stock prices plummeted due to the announcement of inflation in the United States. The S & P 500 fell by more than 7%, while the Dow index fell by more than 6% within five days. Nasdaq has also fallen about 4% since its announcement.
But what does the decline in stocks have to do with cryptocurrencies?The crypto market is More and more interrelationships with traditional financial markets.. This means that as inventory decreases, so does cryptocurrency.
Sotiriou said:
“this is [inflation] Is a major factor in the decline we have seen, as it brings about a more hawkish Federal Reserve. They are now forced to remove more liquidity from the market to reduce inflation.
When liquidity is lost, risk-on assets, including cryptocurrencies, will be hit hardest. “
Cryptocurrencies are high-risk assets and are first sold during times of liquidity crisis and distress.
Inflation hedge
To make the problem worse, Celsius, one of the biggest crypto lenders Assets over $ 11.8 billion As of May, withdrawals and transfers were suspended on June 13.
According to Sotiriou:
“The crypto market is collapsing, with the risk of bankruptcy of one of the largest lending platforms in Celsius, after being widely speculated to be irresponsible for client funding.”
Celsius alleges that despite being denied, he may have had up to $ 500 million in exposure at the UST, which collapsed in early May.
In addition, approximately $ 1.5 billion of assets are tied to the beacon chain stETH, which is traded to Ether at a discounted price. Sotiriou said he had the following concerns:
“When a client tries to redeem a position, Celsius runs out of liquid money to repay them.”
Ether bet on Lido is to be traded one-on-one with Ether, but its price may change depending on market demand.
Similarly, there is Three Arrows Capital. It “seems to file for bankruptcy. They are certainly in trouble,” Thomson said. He added:
“There are a lot of loans in this ecosystem and we are currently under serious stress.”
And these lenders, like Celsius, continue to add collateral to avoid liquidation. If, despite the addition of this collateral, Celsius cannot avoid liquidation, it will go bankrupt. Events like this have a huge impact on ecosystems and can affect nearly 1.7 million investors.
When will the bear market end?
As Thomson said, the crypto market must bottom out before it begins to recover. Like Thomson, Sotiriou expects crypto prices to fall further. He said:
“I think there are even more downsides to cryptocurrencies due to the serious impact of the Celsius liquidity crisis … For many, something like Celsius is called margin and is currently at a liquidation price of around $ 17,000. I think they are afraid that a clearing cascade will occur in their BTC position. “
Bitcoin prices could fall below $ 17,000 before the recovery begins, according to Thomson’s estimates. He said:
“Our price target [for Bitcoin] It was somewhere between $ 17,000 and $ 20,000.
Unfortunately, I think the current actual price target is lower than that. And the main reason I revised it down is because of this secured loan on the market. “
However, Takral said Bitcoin is capable of “thin support” at the $ 20,000 level and Ethereum expects to “sit on the thin support of the wafer” at $ 1,100.
Thomson said the recovery timeline depends on when the market bottoms out. This could be the week of June 13 at the earliest.
“We were able to get this bottom out this week. It’s possible. It’s much more likely than people think … If that happens, we can bottom out and Bitcoin You can actually start moving and disconnect from Nasdaq. “
As inflation accelerates and the recession approaches in the United States, market recovery depends on how long the recession lasts and how “deep or shallow” it is, Thomson said. However, he added, if Bitcoin continues to trade in its current range, it could take “weeks or months” to see a recovery.
Sotiriou expects the market to recover around the fourth quarter of this year and is witnessing inflation declining. But he added:
“I think the bear market could grow until the end of the year, but I think 2023 will be a plus for US equities and cryptocurrencies.”
Shivam Thakral, CEO of the crypto exchange BuyUcoin, told CryptoSlate:
“The market will recover with some relief from inflation and interest rate easing by central banks around the world.
Strict monetary policy is not considered to be beneficial to corporate growth, and more liberal monetary policy can be expected to create a prosperous business environment again. “
Experts are still uncertain about the exact timeline of recovery, but they are all bullish on Bitcoin in the long run.
Thomson said Bitcoin is expected to reach $ 100,000 by the end of 2023. However, the actual path to recovery is as follows:
“What will happen, how soon it will happen, how quickly it will collapse, and whether the market will bottom out for recovery.”
