Bitcoin prices are back below $20,000 again as capitulation continues but the actual market bottom of this bear cycle could be a couple of months away.
Bitcoin has failed to hold the key $20,000 level following its weekend rally and has dropped back 3% on the day. There are still not enough buyers to maintain pressure and even the longer-term holders have been selling.
According to Glassnode’s weekly on-chain report, capitulation is still ongoing as extreme financial stress is certainly in place. It added that there may be a combination of time pain in terms of duration and further downside risks before markets establish a resilient bottom.
The analyst who conducted the research said that Bitcoin investors were not out of the woods yet.
Bitcoin bottom signals
It is very difficult, even for professional traders, to time the market bottom exactly. Getting close is often good enough for a long position considering that BTC is currently down more than 71% from its all-time high.
Glassnode noted that miners are still selling and they have been for the past couple of months. However, in the previous bear market, the miner capitulation lasted around four months so the outflows are likely to continue into Q3.
It also noted that the drawdown during the 2018/19 bear market lasted for around 15 months culminating in an 84% decline in BTC prices from peak to trough. A similar scenario in this cycle could see Bitcoin bottom at around $12K to $13K and markets remain range-bound until Q1, 2023.
“One of the main outcomes of a lengthy bear market is the redistribution of wealth among the stakeholders who remain.”
An extended period of financial pain results in diminished demand creating conditions for the “ultimate capitulation” and bottom discovery phase, it concluded.
Another raft of negative macroeconomic news this month could well trigger an avalanche for crypto markets and that final flush out.
On July 13, the June consumer price index (CPI) or inflation figures will be released by the U.S. Bureau of Labor Statistics and they are predicted to be worse than May’s at 8.7%.
The Federal Reserve is expected to raise interest rates again later this month which is also bad for high-risk assets such as crypto in the short term.
Macro markets expert Lyn Alden thinks the Fed will not be able to keep tightening into 2023, which means a short-term acceleration until inflation is under control. This could result in a painful remainder of 2022 for crypto markets, but the bottom and the end game could be in sight soon, potentially leading to price discovery and crypto spring the following year.
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