George Soros' speculative attack on the Bank of England, the removal of the EUR/CHF minimum exchange rate and finally the collapse of Lehman Brothers - these are the events of the classical financial world, the scale of which may reflect what is currently happening in the world of cryptocurrencies.
Sentiment in the cryptocurrency market seemed to have already deteriorated since last autumn, which could also correlate with the traditional stock markets that are part of the riskier asset category. Expectations of interest rate hikes, the cash phase of the business cycle in anticipation of higher inflation and lower GDP growth, or later, unexpected factors like war could have led to price declines. However, the current events, are no longer just a simple correction, but a true test of the entire crypto-system.
The breakdown of the Terra ecosystem by detaching the 1:1 convertibility of UST to USD, the fall of its main token - Luna, from over $100 a piece to a dozen cents, the collapse of the NFT market, the attempt to detach the convertibility of the largest stablecoin USDT from 1:1 to USD, and the massive discounts of bitcoin and ethereum, the largest cryptocurrencies - these are all events that happen at once, and in a very short time, and the market is trying to cope with them. This, in turn, can cause extreme fear among cryptocurrency holders similar, perhaps, to the fear in the eyes of tech company stock holders when the dot-com bubble burst.
Nevertheless, anyone who participates in the cryptocurrency market must also be aware of its cyclicality, especially when it comes to bitcoin and halving cycles. From this perspective, a classic bear market may currently be forming ahead of the next halving, which is expected to occur in March 2024. From a historical perspective, it is during the time occurring between the two halving cycles (the previous one was in 2020) that the biggest correction in the BTC price may occur. On the occasion of the prior cycle, the price of BTC fell from around $19,000 to around $3,000. If this is compared to bitcoin's peak in 2021 around $70,000, then even a drop to $11,000 would not be out of the ordinary.
However, never before has the cryptocurrency ecosystem been as extensive as it is now, nor has it been as large as it is now, hence perhaps the scale of the repricing in the cycle may not be as significant as before.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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