Analysts: There Will be Further Liquidation Before the Cryptocurrency Market Recovers

News, Opinion | July 19, 2022 By:

Even after a brief rebound on July 5, the cryptocurrency markets remain difficult to get into for novice investors. On July 6, the global cryptocurrency market value fell 0.61 percent to $905 billion, as Bitcoin traded for around $20,000. According to CoinMarketCap, most of the leading cryptocurrencies saw their prices drop after briefly soaring. Nowadays the most popular cryptocurrency in the marketplace – Bitcoin still continues to struggle and decrease in value. 

Over-leveraged companies sometimes find themselves in dire straits. This happens when the value of their collateral plummets during a lengthy bear market in the crypto market, eventually leading to liquidation. There is an influence that spreads throughout the industry, resulting in the collapse of one company at a time. Some companies may be forced to take drastic steps, such as halting withdrawals and transactions, if customers are rushing to get their money out.

Is the bull market going to stay here for a long time?

All eyes are now focused on the $20,000 price level, not only because it symbolizes the apex of Bitcoin’s previous bull run in 2017, but also because it is a crucial psychological barrier level. Bitcoin’s price has never dropped below the preceding bull market’s high in previous bad markets. This time, though, Bitcoin has a far shorter distance to go until it reaches that milestone. Sam Callahan, a Swan Bitcoin analyst, predicts that Bitcoin might fall by as much as 80% from its all-time high, as it did in December 2018 when it dropped to a little over $3,000, based on prior bad markets.

It’s inevitable that, as institutional investors become more involved in crypto, their trading methods and habits become more like those used in conventional financial instruments. Those investors who want to make their strategy generation simpler usually opt to use software tools like Bitcoin Method, which makes the trading process in a volatile and fluctuating crypto market quite convenient. These AI-generated tools analyze the huge market data in a very short period of time, helping individuals to get the most out of their trading process.

The price of Bitcoin has dropped below half of its 200 DMA in the current bear market. Mayer Multiple (MM) tracks price deviations above and below the long-term mean of 200 DMA to indicate overbought or oversold circumstances. The 2021-22 cycle’s MM value (0.487) is the lowest in history for the first time ever (0.511). Only 84 trading days out of 4160 had a closing MM value below 0.5, which is 2%.

The market’s turbulence is likely to continue since bears seem to be more powerful than bulls. In comparison to its all-time high, BTC is down approximately by 71 percent. Similarly, Ethereum has lost 70% of its year-to-date value. Bitcoin has been unable to maintain a price over US$20,000 for the previous two months. A move by the bulls to maintain BTC above this level can lead to some interesting market activity. The market’s overall volatility remains high as bears continue to outperform bulls.

The rise of institutional investors in the crypto markets has significant ramifications for future trading patterns. Reducing the correlation between Bitcoin and ether and other conventional risk assets, for example, may reduce their inclination to trade as uncorrelated assets.

Before the epidemic and the ensuing enormous stimulus injections by global monetary authorities, this dynamic – the low correlation – was more widespread. Institutional investors’ continuous and presumably increased involvement in the crypto field might lead to a stronger degree of correlation between crypto and risk assets than has previously been the case, even if financial market liquidity circumstances “normalize.”

Because of the ongoing market volatility, analysts say that there will be further liquidation in the marketplace, considering that the market isn’t going to rebound in the near future.

Final Thoughts

Prices will continue to fall as more crypto assets are sold, indicating greater hardship for the sector. Since the fundamentals of economics are the same as those in textbooks, analysts regarded this crisis as analogous to what had occurred in the conventional markets.

A well-known algorithmic-driven method, DeFi protocols would automatically liquidate collaterals when the thresholds are crossed. Regardless of market circumstances. Because of this, during the recent market meltdown, they have outperformed centralized enterprises that provide identical off-chain services.

While some analysts anticipate that crypto markets will recover in the next few months, others feel that investor skepticism will linger in the near future.

“I’m certain that crypto will rebound. The bloodbath and crypto winter will be finished by August 2022.” The creator and CEO of MuffinPay, a bill payment, and utility token, said that Bitcoin might reach an all-time high of $70,000 by the end of the year or in the first few months of 2023.

It is also worth mentioning that even though the crypto market is a decentralized market, the correlation between crypto and other financial markets increases. As the currency and stock markets aren’t going to rebound, because of the ongoing increasing inflation rate among major countries and the Russia-Ukraine war, the possibility of the crypto market recovery is decreased as well. So what will be in the future, whether or not the crypto market returns to its great years, is a matter of time.