Everyone has long been accustomed to the fact that the top cryptocurrency is characterized by high volatility. First, the rate rapidly rises and then comes to correction. Yet the change in the price of Bitcoin affects the entire market and causes anxiety among investors. The growth of cryptocurrency does not bother anyone, but its fall leads to significant financial losses by investors. When Bitcoin creeps down, it pulls down the entire altcoin market, except for some coins. Many traders make good money on a drawdown, too.
The recent fall in the Bitcoin rate has significantly shaken the crypto community, but some experts and analysts were not at all surprised by the situation. The main cryptocurrency obeys the laws of the market, which means there are reasons behind the rate jumps and expectations of future scenarios.
Why did Bitcoin fall?
Crypto enthusiasts are most interested in the reasons for the Bitcoin drop. Understanding these patterns allows you to make forecasts for the future in order to minimize financial losses during corrections. Bitcoin not only obeys the law of the supply and demand, it can also be influenced by external factors.
To understand the reasons in greater detail, we asked experts about the causes of the sharp price decline and the events which influenced it, and whether it was an unexpected drawdown or a completely predictable decline.
- Bitcoin mining is becoming more difficult. To date, the complexity of Bitcoin mining has reached its peak. The United States extended the moratorium on its mining in the country, which negatively affected the cryptocurrency.
- The cost of Bitcoin correlates with the values of the S&P500 and NASDAQ indices. US markets are going through hard times, and there is a correction. The S&P500 is down 18% since the start of the year. Bitcoin is 98–100% correlated with the US market. When the market falls, the price of Bitcoin falls.
- Bitcoin was sold off during the collapse of the UST and LUNA exchange rates. An attack was carried out on the UST stablecoin, after which its rate got unpegged from the dollar and dropped by over 80%. Bitcoin was abruptly sold en masse.
Let's take a closer look at all these reasons.
Correlation with the stock markets and the increase in the key rate of the US Federal Reserve
For many experts and analysts, the fall of Bitcoin was a completely predictable phenomenon. Everyone knows that the market is cyclical, and cryptocurrency rates react sharply to certain events both in the crypto market and the entire economy. This allows you to predict the behavior of the asset, as the correlation between the situation on the stock market and the BTC rate becomes more and more obvious every year. The increase in the key rate of the US Federal Reserve has a particularly powerful impact on Bitcoin.
Ilya Angelov, financial expert and Founder of the AngelovCapital investment telegram channel, says,
“Last November, Bitcoin was trading at a record $67,000, and it has fallen by over 2 times. As we remember, this is not the first crypto winter. In 2018, the price of Bitcoin decreased by 84%. Then the world's first cryptocurrency was traded for $3,200. Now the markets are facing another correction. Such volatility is associated with changes in the policy of the US Federal Reserve System—an increase in the key rate to curb inflation in the country, which has reached its highest levels over the past 40 years. During a US recession, many Bitcoin holders started to sell, and an increase in supply traditionally leads to a fall in prices.”
Evgeny Pavlyukevich, Co-Founder and Head of the blockchain division of Atras studio, researcher at Lomonosov Moscow State University, also believes that there is nothing super unexpected in the bitcoin drawdown. Cryptocurrencies are no longer as independent or as decentralized as many investors believe. It is enough to look at the correlation of the NASDAQ or S&P 500 indices with Bitcoin, which is about 60-80%. A growth of one cannot occur without a growth in the other. The world is moving towards the adoption of cryptocurrencies, which makes them more dependent on the same factors that the stock market depends on.
The crypto industry is also an economy. Cryptocurrency rates are determined by economic factors. If Bitcoin falls, the demand for it has fallen or the supply has increased. In the last drawdown, this was a drop in demand. It was due to fundamental news from the United States, where they faced what they had not faced for many years, 8% inflation. One step to combat it was an unprecedented increase in the Fed interest rate. So, macroeconomic uncertainty increased, with interest in the stock market, including cryptocurrencies, falling. Faced with uncertainty, high-risk assets are the first to be spent, and cryptocurrencies are just such a type of asset. And they began to get rid of them immediately. The UST collapse also raised panic and undermined confidence in all crypto assets. The drop below the psychologically important mark of $30,000, from which many investors calculate their entries into transactions, undermined Bitcoin even more.
Dmitry Noskov, an expert at the StormGain crypto exchange, also notes that the crypto market is now very strongly correlated with the stock markets, so they are essentially influenced by the same factors. These are geopolitics, rising inflation, and tightening of monetary policy by financial regulators. According to the expert, such a drawdown of Bitcoin was more or less expected. Investors are now less and less considering the main cryptocurrency as an alternative tool to transfer funds from the classic financial markets into. Until recently, they had preferred to use stablecoins for this purpose.
Anton Efimenko, consultant on tokenomics and tokensales, says,
“Cryptocurrencies as an investment instrument are governed by the same rules as classical assets. The global crisis has undermined the finance of the world community, with inflation growing, goods disappearing from the shelves, and people no longer wanting to invest in volatile assets. The issue of capital preservation, rather than its increase, has become acute. After the global economy emerges from the crisis, the price of Bitcoin will again rush up.”
The market sentiment is a separate factor. Despite having the largest market capitalization, the price of Bitcoin is subject to market manipulation, just like other crypto assets. A negative newsbreak and a high index of fear become the reasons for massive sales of the asset, which inevitably leads to an even greater drawdown of the exchange rate.
Daniil Shepovalov, IT expert, specialist in technical analysis, says,
“From May 5 to May 12, Bitcoin fell by 36%. The could be due to different crypto world events related to LUNA, UST, all that. Or take a wider look at the markets. On exactly the same days, the Dow Jones index fell by almost 8%, and the S&P500 lost almost 10%. Bitcoin is a risky asset, so it is not surprising that it was dumped amid the fall of the stock market.”
Chart: XBT/USD fluctuations from 2018 to 2022
Ivan Petrov, a professional technical trader, macroeconomist, Founder of the Eco Investments school of profitable investments, notes that the volume of capitalization directly depends on the level of popularity of a financial asset. The more money there is in the market at some moment, the more its professional participants and persons affiliated with a particular asset will earn. The cryptocurrency market is relatively young. It is in its infancy, and it is easier to manipulate it than "traditional" markets. This is exactly what happens all the time: first, the market is "pumped" with money (including through manipulation of the opinion of private investors), so the market grows; then comes profit-taking, so the market falls.
The expert adds,
“The primary reasons investors massively began to close their positions and exit Bitcoin are probably related to profit-taking by early buyers. A rapid jump to 70,000 USD by the end of 2021 naturally provoked sales—exit of buyers from the market. Massive "shorts" (uncovered sales) and general panic contributed to a further fall. So, the current fall is quite predictable. Moreover, the fall to the level of 30,000 USD was absolutely justified in technical analysis.”
Yuri Gusev, Founder and COO of Zam.io, also sees market manipulation as the reason for the drawdown. According to the expert, the market crash led to a decrease in the prices of all cryptocurrencies, including Bitcoin, and this was not by chance. During a sharp drop in the price of BTC down to $29,000, the whales were actively buying up the asset, so the recovery was also fast.
An important factor influencing the price of an asset is the interest of large investors. The influence of institutions on the crypto market is quite big, given that digital currencies are becoming an increasingly popular and attractive investment tool every year.
Anton Yakovlev, a financial expert and investor, thinks that the fall of Bitcoin was predictable. He notes that international investors perceive Bitcoin not as a currency or an exchange commodity, but as a growth stock. These include stocks of technology companies. Investors buy such assets when they expect the economy to develop in the future and a strong demand for risky assets to exist. Such a market could be observed for almost the entire 2021. Since November 2021, however, the stagflation phase has begun, in which the economy is contracting and inflation is rising.
Since the beginning of 2022, Bitcoin has decreased in value by 36.5%, while the technology sector has decreased by 23.3% and retail by 29.15%. This trend is clearly seen in all stocks and bonds with increased risk. Historically, this phase has been detrimental to growth companies and the high-risk sector. Investors' appetite for risk has plummeted, and saving money has become their primary concern. Because of this, a huge flow of money into dollars and protective assets has been occurring until now. Liquidity left risky assets, so Bitcoin lost support from the largest investors.
The expert also adds that until investors have more confidence in the economic recovery, Bitcoin will not have support. Stagflation is expected to last at least until the end of 2022. Further erosion of the Bitcoin rate is possible.
Negative newsbreaks and other factors
As negative or positive political news lead to a fall or rise in the fiat currencies of different countries, so events in the crypto industry affect the rates of different coins and tokens. In this situation, a negative newsbreak, namely the collapse of the UST stablecoin, served as another trigger that led to the collapse of the top cryptocurrency.
Vadim Tsarenkov, a leading cryptanalyst at Vekus Mining Development, says,
“Over the past year, there has been a sideways growth correction on the Bitcoin chart, which has been formed in the range of approximately $29,000–$63,000. Below the $29,000 support level, there are many stop orders from buyers who have been purchasing Bitcoin since January 2021. A price drop below $29,000 is beneficial for a large player who wants to increase their position and buy the asset at a lower price. But in order to collapse the price, some serious news is needed. Such a reason was the attack on the UST stablecoin and the LUNA coin, which were owned by many investors, and that provoked a panic in the market and the sale of other assets, including the main one, Bitcoin. What was the big player getting at? While everyone was selling, he was buying. Such a maneuver is not unexpected for an experienced trader. The trader understands where the price will go, but does not know what events and at what moment will provoke this movement.
“For more than a year now, everyone has been talking about the beginning of the crypto winter. However, no one expects ‘crypto spring’ yet. If we open the logarithmic chart of Bitcoin over its entire history, we will see movement in an upward channel (i.e., the price of the asset has been growing over the years). You can take a chart of Bitcoin and see the ascending parallel channel that we have been moving in since 2013. Now we have come close to the lower border of this channel, from where major players have been buying for 9 years, with resultant price rises. Does this mean that the situation will repeat and we will see a new growth cycle of Bitcoin to $100,000 and above?”
Alexander Belenov, head of the Blockchain Laboratory at the Idea Research Center, emphasizes that Bitcoin has updated its anti-record, eight weeks of continuous decline. And if the first six weeks were more or less predictable, then the seventh and eighth weeks clearly fell out of the expected trend. Today, a significant part of Bitcoins is outside crypto exchanges, on the wallets of holders. This means that relatively small funds are enough to skyrocket the price of Bitcoin. Fundamental and technical analyses indicated that Bitcoin had to go, at least, into a correction. But the failure of the TerraUSD project and the release of more than eighty thousand BTC into the market led to a further collapse in the Bitcoin price. And now the market is fearful. The fear index has never risen above 14 points in the last 13 days, and one day it fell to 9. This means that investors are in a panic.
Dmitry Zamolotsky, an analyst in banking and cryptocurrency, a successful financier, says,
“The recent fall of Bitcoin was a likely scenario that worked out. As always, that was due to demand and supply.”
Vladimir Gorgadze, Head of the Blockchain Master’s Program at MIPT, Head of Tokenization Projects at MMC Norilsk Nickel, Head of blockchain solutions development company Newity, believes that the fall in the price of the top asset was expected, given the negative movement of the stock market and especially its IT-parts. According to the expert, the sharp depreciation occurred during manipulations that led to the fall of the Terra ecosystem. By all indications, the attack was planned, and the attackers played on the fall in the Bitcoin rate as well.
Vasily Kudrin, partner and Investment Director of the Lybrion international group, believes that there are many factors in this situation, but Bitcoin has historically reduced its volatility. The main reason is the loss of interest in the key stories of the crypto industry that formed in 2020–2021, namely NFT, GameFi, digital real estate, and a decrease in interest in ordinary DeFi models. The market is trying to find new ideas that will form trends.
According to the expert, the intensity of the fall of Bitcoin was influenced by the recession in the technology sector, the US financial authorities’ key rate policy, which caused an outflow of capital from risky assets, and the international situation.
What will happen to the Bitcoin price?
We have figured out the reasons for the fall in the Bitcoin rate. What will happen to the rate next? We asked the experts which scenario is most likely and whether we can talk about the beginning of a crypto winter.
Ilya Angelov believes that Bitcoin will continue to go down for some time and update the minimum threshold. A drawdown to $20,000 is not ruled out. As the flagship of the cryptocurrency market, it will pull down altcoins. But this is temporary. Winter passes, summer comes. This is a law not only of nature but also of the market. It is cyclical, and in the long run, BTC will inevitably return to the growth phase. It is supported by infrastructure, miners, and large holders, including national governments and top global companies.
Ivan Petrov gives the following forecast,
“At present, the fundamental "bridgehead" where a fierce confrontation between buyers and sellers takes place is 30,000 USD per 1 BTC. In which direction the price of Bitcoin will movein the medium term will depend not only on the balance of fears and market expectations, but also on the actual relative volume of supply and demand in the current fundamental price zone. By the way, a huge number of speculative positions have already been liquidated, and many leverage investors have simply been ‘shaken out’ of the market.”
Vladimir Gorgadze answers the question as follows,
“The further behavior of the main cryptocurrency rate, I think, will largely depend on the behavior of the stock market, and specifically the Nasdaq exchange. I don't think a crypto winter is coming.”
Evgeny Pavlyukevich notes that, based on the technical analysis of the Bitcoin rate chart, we can say that the next month will be decisive. If Bitcoin finds support at $29,000, as it did in July 2021, then growth may begin. If uncertainty continues in the US and the Fed tightens monetary policy, then we expect a breakthrough of support and an even greater fall.
Regarding the crypto winter, the expert believes that if you look at the Bitcoin rate, you can say that the market has actually been in the crypto winter for half a year already. It is difficult to say how long this crypto crisis will last. Fundamentally, Bitcoin is more and more supported by the news about its acceptance as a means of payment in some countries and the interest in this asset from the Fed and D. Powell, the development of ETFs and the consideration of various proposals in this direction by the SEC. Fundamentally, for the long term, everything is fine for Bitcoin, and it should grow. But this is more likely to be relevant on the horizon of 6 months and beyond. Then it will be possible to talk about the end of the crypto winter.
Anton Yakovlev reminds that Bitcoin is perceived by international investors as an asset with increased risk. At the moment, risk appetite has been greatly dropped and investors are concerned with saving funds, rather than increasing them. The outflow of capital from risky assets to protective assets, such as the dollar and bonds, has been recorded everywhere.
The expert adds,
“According to our forecast, the macroeconomics in 2022 will be in the stage of stagflation, that is, a reduction in GDP and rising inflation. This environment is historically neutral for the price of Bitcoin. When the stock market crashed in January 2022, there was no fall in the price of the cryptocurrency. In fact, it happened only in May 2022. According to the forecast for 2022, the macroeconomic situation remains unchanged. Therefore, investors should expect Bitcoin prices in the range of $30,000–40,000. For the beginning of the crypto winter and the collapse of the main cryptocurrency, the world must go into a recession, in which both GDP and inflation drop. So far, such a situation is not predicted.”
Dmitry Zamolotsky says,
“It is highly probable that we have reached the bottom for Bitcoin, after which the growth will begin. In the next 2 weeks to one month, we will most likely see another slight decrease to 24,400. With a lesser probability, the decrease will approach the value of 21,000.”
Crypto investor Ilya Sdobnikov believes that it is too early to talk about the beginning of the crypto winter. Bitcoin is close to the important level of 27,500-27,800 dollars. When the price breaks through and gets fixed under it, it will be possible to talk about crypto winter, as targets of 20–18–12.5 thousand dollars per coin open. (Right now this is the most likely scenario). However, if during the descent to the level of 27,500–27,800 there will be increased volumes from the buyers, a return to the bullish movement is also possible, with the target of 48–50 thousand per Bitcoin.
Dmitry Noskov is sure that Bitcoin will still fall in price soon and may go down until the price bottom reaches $20,000. Then a return to growth is likely, a jump to the level of 50 thousand dollars. Much of the future fortune of bitcoin depends on geopolitical factors, the state of the global economy and further actions by financial regulators of the largest countries.
Vadim Tsarenkos says,
“We cannot accurately predict the future, but, analyzing the past, we can conclude that this price support level has been working for 9 years. Now it is $27,000. This, by the way, does not prevent the price from dropping below $27,000 for a short time. The main thing is not to stay there for over one month. If the price gets fixed for more than a month significantly below the level of $27,000 on higher timeframes, one can talk not about a crypto winter, but the beginning of a big bear market for Bitcoin, perhaps for several years. But it is too early to talk about such developments.”
Yuri Gusev says quite positively,
“I am sure that in the near future Bitcoin can rise to $55,000–$60,000. Several facts at once show this trend. If you look at the weekly chart, no dumps are expected, as the market has been recovering steadily. Moreover, the second week of May was closed with a price mark above $30,000, which indicates an increase in the price of Bitcoin. If in the near future Bitcoin finds a support level at $ 36,000, this will mean the onset of a bullish trend.”
Alexander Belenov notes that Bitcoin is traded in the corridor of $28,500–$31,500, the volumes are small, and there are no buyers in sight. The latest statements by the Fed do not add optimism to the market. The S&P500 index is falling and has already reached the levels of the beginning of March last year. The Nasdaq-100 index fell to the level of early November 2020, and there are no reasons for growth. Bitcoin loses out to gold as an asset insurance against inflation. The funds that acted as Bitcoin price drivers in the fall of 2020 do not currently have a similar amount of free funds due to a change in Fed policy. Buyers who could push the market up are not visible. Everything says that bitcoin will go lower. But many traders expect a local correction to $35,000.
By all indications, the rapid rise in the value of Bitcoin, which everyone has been waiting for, should not be expected in the coming months. But falling even lower is very probable. The market will show its size. For the last week, the rate hit the $28,800 level three times. And this means that the price is not allowed to go lower. But, as already mentioned, there are no buyers in sight, trading volumes are small, and there are no reasons for growth. Most likely, the level will be broken, and the rate will fall to the level of $20,000 per BTC. Now everything says that the crypto-winter has come.
Anton Efimenko believes that Bitcoin cannot be separated from other assets and market participants. For example, with the global crisis, the investment potential of all startups has decreased. The demand for the main cryptocurrencies involved in the payments for tokens at initial placements is also falling. The fall in the price of Bitcoin affects the income of miners and the frivolous purchases of new IDO tokens. Investors are leaving crypto for familiar assets that can be more accurately predicted. According to the expert, this is definitely the beginning of the crypto winter.
Daniil Shepovalov says,
“Bitcoin is currently holding a key level of $29,800. If it fails over time (and given the current instability in the world, this is a fairly likely scenario), then hardly anything will be able to keep it up at the level of $20,000. This is the high of 2017. The $6,500–20,000 range is a strong support zone, as this range was in sideways trading for almost three years. Bitcoin is very likely not to drop below this zone for a long time during the crypto winter. An alternative to crypto winter is further movement of bitcoin in a wide range of $30,000–60,000.”
Vasily Kudrin is sure that this is not a crypto winter, but a rather strong, but still temporary cooling during the period of the growing “spring” of the second cycle of the crypto industry development, which began at the end of the 20th year, and the cycle itself will continue for another 5 to 7 years until real "frost". According to the expert, within this cycle there will be a significant increase in the share of crypto assets in the international finance, as well as an increasing decoupling of crypto trends from the dynamics of Bitcoin, a decrease in its dominance. That’s why you should not focus too much on the bitcoin rate in the next 2 years. Sudden movements and purchases can disappoint. Fundamentally, Bitcoin could rise high before its next halving in May 2024.