The start to this week hasn’t quite gone the way that many in the crypto space would have wanted. Coin prices have dropped to some of their lowest points in almost a year, and there are now fears that we could be in for even bigger drops in the coming days.
The issue stems from the broader traditional economy, where countries are seeing massive corrections and governments are looking to stem the tide of inflation and deal with supply chain concerns.
While the most ardent cryptocurrency supporter or investor would easily say that we’ve been here before and there isn’t much of a reason to panic, there is a sense that we might be in for a much deeper correction. However, what is the signs that we could look towards to show whether we’re almost out of the woods or there’s more of this mania to come?
Regardless of how you look at it, there’s a very little speck of hope for the crypto market in the long term.
The asset even hit $29,761 on Monday - marking the first time that Bitcoin could cross below the $30,000 mark since July 2021. At the time the crypto market was reeling from a massive downturn that began with Tesla abandoning Bitcoin and stretched up until a massive liquidation from the Grayscale Bitcoin Investment Trust.
However, the current drop is coming due to fears from the traditional economy. The Federal Reserve announced massive interest rate hikes last week, sending the entire economy into a tailspin. With individuals and companies now finding it more difficult to borrow money, many lack an incentive to invest in cryptocurrencies.
The Fed announcement caused the price of Bitcoin to close at the $34,000 price point last week. This marked the sixth week in a row that Bitcoin’s price will close lower - a feat not seen since August 2014.
So, considering that many analysts are pointing out bleak outlooks for the Bitcoin and broader crypto markets in the short term, it’s easy to see why. Many of these analysts understand that we seem to be entering uncharted territory, and only strong investors would be rewarded for their tenacity.
As explained earlier, the primary cause of this current bearish run is the weakness in the larger macroeconomic environment.
Stocks are even more disturbing at this point. Several of the top tech stocks have seen up to 20 per cent drops, with companies like Facebook and Netflix suffering severely. Now that the crypto market is starting to move in line with the traditional stock market, drops in the latter are sure to affect the former.
Things are also not so great on the macroeconomic front. The world is still dealing with supply chain constraints, and the conflict in Ukraine isn’t helping matters. With reports that China is now dealing with what looks like a resurgence in coronavirus cases, it is entirely possible that the country takes measures to seal itself once more.
All of these will put massive constraints on the global economy. This week, we expect to see the release of April's consumer price index (CPI) figures in the United States. The smart money will bet on these numbers reflecting the dire status of the global economy.
President Joe Biden is expected to address the issue of inflation this week as well, just before the release of the CPI figures on Wednesday. The CPI for March was 8.5 per cent - an alarming number according to most experts. If the figures look even worse in April, then the forecast for inflation will be even more realistic. Definitely, that can’t be so great.
While all of this is bleak, it is worth noting that the current market situations also present a massive opportunity for investors to make money.
If there is one thing that crypto has shown from time to time, it is that it’s a very resilient asset class. Short-term outlooks might be bleak, but this doesn’t necessarily mean that the entire market is about to go down the drain. Even if it takes months, crypto will bounce back.
Thus, some opportunistic investors will be attracted to the possibility of buying the dip right now and enjoying the massive gains. Institutional interest in crypto remains high, with companies like MicroStrategy and the Luna Foundation Guard committing over $1 billion collectively towards investing in Bitcoin across the past month alone.
If there’s anything that can be good for the crypto space, it is increased attention from institutional investors. At the end of the day, these are the individuals and companies with the deepest pockets whose investments - or withdrawal from the market - can cause seismic shifts in the dynamic of things. If they’re still pouring money into the market, then we can all heave a sigh of relief.
All in all, it will be impossible to sugarcoat things and say that the market is looking bright in the short term. The CPI report coming this week could serve as a further drawdown on the market, and then we could see Bitcoin and other altcoins take further dumps. But, the future remains bright. Those who can see that will eventually get gains.