How does the Bitcoin market “in great fear” compare to the past, and what to expect next

stablecoin USDTerra, or UST USTUSD,
+ 0.54%And
Once among the top 10 cryptocurrencies by market capitalization, it lost its 1-to-1 peg against the US dollar, dropping to 6 cents on Friday, according to CoinDesk data. LUNA LUNAUSD,
-31.25And
The other cryptocurrency backing UST has fallen to nearly zero from over $80 in early May, with its market value shrinking by more than $40 billion since early April.

Cryptocurrency exchange QCP Capital wrote in a note Friday that it represented the “largest wealth destruction event in the short history of the cryptocurrency markets,” since Bitcoin was created in 2019.

to explain: Why do ground tanks crash, and LUNA? Explain the collapse of a cryptocurrency worth 40 billion dollars

Meanwhile, Bitcoin BTCUSD,
-1.46%
It fell to $2,5402 on Thursday, the lowest since December 2020, before rebounding to around $30,000 on Friday, according to CoinDesk data. The Bitcoin Fear and Greed Index is currently at one of its lowest points, Which indicates intense fear.

USDTUSD rope,
-0.02%And
The largest stablecoin, it briefly fell to 96 cents against the dollar on Thursday, before rebounding to $1.

more than 400 billion dollars It has been erased from the crypto market over the past seven days, according to CoinGecko. All sectors within the crypto space experienced double-digit losses during this period, with cryptocurrencies related to Web 3, the so-called next generation of the Internet, posting the largest loss at 41% on average, according to analysts at Messari.

Echoing, an industry participant said, the chain of events may herald the start of another “crypto winter.” Common thread this week on Twitter.

Some are more optimistic. “It’s a pattern. When we look at what happened in 2014, the crash happened and there was a lot of panic. People say, oh, the crypto is dead. It won’t come back,” Mike Belshey, founder and CEO of crypto infrastructure provider BitGo, told MarketWatch in an interview. But, of course, she’s back.

To be sure, the industry is still nascent and lightly regulated, while the cryptocurrency market is still volatile with high risks.

Bitcoin withdrawal

At Thursday’s low of $2,5402, bitcoin is down 63% from its all-time high of $68,990 in November. The percentage drop is larger than the 54% drop from the cycle high in July 2021, but smaller than that of other bear markets.

The chart below shows Bitcoin’s previous pullback from the highs of each cycle.

glass

In March 2020, bitcoin dropped as much as 77% from its cycle high, according to Glassnode data. In the January 2015 and December 2018 bear markets, bitcoin surrendered at lows of 85.5% and 83.8% of local highs, respectively, according to Glassnode data.

Market lower?

Some have said that Bitcoin is approaching a “cyclical bottom for generations”.

Bitcoin’s drop on Thursday is approaching its realized price, the basis of the combined cost for on-chain investors, which is currently $24,000, Will Clementi, lead insights analyst at Bitcoin mining firm Blockware Solutions, wrote in a note Friday. Clemente wrote: “Any prices below the realized price must be viewed as a maximum value.”

Historically, the closer the price of bitcoin gets to the realized price, it indicates a buying opportunity, Clemente told MarketWatch in a recent interview.

Clemente said it is also worth watching the 200-week moving average of bitcoin, which usually points to a periodic bottom. It currently stands just above $21,500.

However, significant uncertainties remain in the financial markets, as evidenced by price movements across stocks.

Read: Despite the rebound, the S&P 500 is getting dangerously close to a bear market. This is the important number

“I think this is just the beginning of an ongoing decline in cryptocurrencies,” Jay Hatfield, chief investment officer at Infrastructure Capital Management, told MarketWatch in a recent interview.

Hatfield attributed the high bitcoin returns in 2020 and 2021 in part to the Federal Reserve’s quantitative easing policy. We saw an unprecedented increase in Fed liquidity, as we bought $120 billion a month in securities. “And now we’re going to have an erratic shift to cash cuts for $95 billion a month,” Hatfield said.

The Fed has not even begun to do quantitative tightening. Hatfield said.

Hatfield estimated that bitcoin could drop to $20,000 by the end of this year, and said that in a worst-case scenario, it could drop to the pre-pandemic level of around $10,000. “I don’t expect we’ll get there, but ten thousand dollars would be a reasonable target,” Hatfield said. Hatfield compares bitcoin to Cathy Wood’s flagship Ark Innovation ETF ARKK,
+ 11.82%And
Which is down more than 70% from its peak and at about the same level in March 2020.

Read: With the main Ark fund down 76% from its peak, Cathy Wood still views its stock as being residing in an ‘area of ​​deep value’

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