Understanding The Bottom of a Cryptocurrency Market:
Cryptocurrency Analysis – October 20, 2022
It’s crucial to consider two factors:
- The impact of an economic downturn
- The forthcoming BTC halving event
The decline of the US Dollar has exerted downward pressure on all risky assets, including cryptocurrencies, which have been subject to persistent selling throughout the year.
Despite cryptocurrencies being perceived as decentralized, BTC has demonstrated a strong inverse correlation with the US Dollar Index (DXY). A rise in the US Dollar results in a decline in BTC value (and vice versa) – refer to the DXY V BTC chart below.
Returning to the headline: Understanding the bottom of a cryptocurrency market: A probable bottom will emerge once the bullish trend of the DXY concludes.
Therefore, a fundamental shift away from the US dollar will be necessary before a significant market bottom in BTC can be considered.
Additionally, the BTC halving event should not be overlooked…
Historically, Bitcoin has followed 4-year cycles aligned with the BTC halving date. With the next halving event projected for February/March 2024, past bull and bear market data can be utilized to anticipate the upcoming upward cycle.
BTC has only experienced a decline of approximately 73% from its all-time high (ATH), suggesting there’s still potential for further downside. Typically, BTC undergoes an average decline of around 86% during a bear market, which would bring BTC down to the $12-15k price range.
The average BTC market bottom tends to occur roughly 400 days PRIOR to the BTC halving event, hinting that the next BTC bottom might potentially occur in early February 2023.
What significant financial event might take place in early 2023?
The BoE, BoJ, and ECB have already intervened in the financial markets, essentially “PIVOTING” in an effort to stabilize them. Recently, the RBA reduced the magnitude of its interest rate hikes.
Gradually, central banks are scaling back their aggressive interest rate hike trajectories as the global economy edges closer to a recession.
The highly anticipated one is the FED’s response.
Considering the strong likelihood of a 2023 recession, there’s potential for a FED pivot or pause as we approach the year-end and 2023. The nature of this pivot remains uncertain.
A FED PIVOT might trigger a shift in momentum away from the US Dollar Index, resulting in a weakened DXY and a resurgence of interest in risk assets like BTC.
Something noteworthy, we’re stepping into uncharted territory with BTC. US interest rates have broken away from a cyclic pattern characterized by lower highs and lows.
US Interest Rates:
Since the 1980s, US interest rates have been confined within a negative trend. This era has now concluded. Are we entering an extended phase of higher highs and lows? If so, these market conditions are novel for BTC, and the performance of cryptocurrencies in a sustained period of rising interest rates remains to be seen.
Just something to be mindful of.
In the mid-term, the BTC halving event and the potential for a FED pivot can be strategic plays.
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