From a historical perspective, the loss in value realized across the entire cryptocurrency market in recent months has been one for the history books, especially considering that the total cryptocurrency market capitalization has gone from $3 trillion to $991 billion.
The month of June was especially painful for investors after the price of Bitcoin (BTC) fell nearly 40% to mark one of its worst months in history according to a recent report from cryptocurrency research firm Delphi Digital.
In light of the sharp market correction, a number of Bitcoin price and on-chain metrics have started to reach levels similar to those seen during previous market bottoms, but this does not mean traders should expect a trend reversal. soon, as history shows that periods of weakness can last for months.
Headwinds weigh on BTC price
One of the most significant factors weighing on cryptocurrencies and other risk assets has been the strength of the US dollar.
Combined with rising inflation and falling economic indicators, the strength of the DXY is a sign that an economic slowdown is all but inevitable, with forecasts now predicting a recession in early to mid-2023.
Against this backdrop, BTC is now attempting to establish a local bottom around the 2017 cycle high near $20,000, “the last clear structural support on the long-term Bitcoin chart.”
This current cycle marks the first time in Bitcoin’s history that its price has fallen below the all-time high set during a previous bull cycle. Should BTC fail to hold support near $20,000, Delphi Digital noted an expected “support around ~$15,000, then ~$9,000 to $12,000 if that level doesn’t hold.”
Although these estimates may seem bleak, keep in mind that the price of BTC fell roughly 85% from the high to the low during each of the previous two major bear markets.
If the same were to happen during the current bear market cycle, that would put BTC at $10,000, marking another 50% decline from current levels and falling in line with the 2018-2019 price range.
For this reason, analysts at Delphi Digital believe that “there is still more pain ahead for risk assets.”
And the background when?
Bitcoin’s Percentage Remaining in Profit and Bitcoin’s Realized P/L Ratio Approach Levels Seen During Previous Bear Markets, But Each Has “A Little More Room To Go” Before Hitting Their Lows for this cycle, according to Delphi Digital.
According to the company, “momentum indicators and valuation metrics can remain oversold or undervalued for a long period of time,” making them “poor timing tools” that are unable to predict immediate pullbacks.
Contrarian investors will also want to keep a close eye on the market’s stance, as well as the Fear and Greed Index, which has already hit record lows.
As for a possible positive move, Delphi Digital noted that “BTC has room to the upside due to the cascade of previous sell-offs in the wake of 3AC,” and identified the next major resistance level as $28,000.
DelphiDigital said:
“BTC is likely to continue to consolidate until we get some sort of macroeconomic catalyst.”
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