Amidst the ongoing crypto bear market that has seen Bitcoin prices tumble nearly 70% from their all-time highs, a ray of hope has emerged from an unlikely source - JPMorgan Chase & Co.
In a recent report, the banking giant suggests the steep declines seen in cryptocurrency markets over the past several months may be coming to an end. According to Nikolaos Panigirtzoglou, head of JPMorgan's global markets strategy, key market indicators point to waning selling momentum that could limit further downside.
Panigirtzoglou highlighted the decline in open interest in CME Bitcoin futures contracts as a sign the current sell-off is losing steam. Open interest refers to the total number of outstanding futures contracts that have yet to be settled. Generally, a drop in open interest signals that a price trend is running out of gas and could reverse.
With open interest in Bitcoin futures plunging by over 60% from its peak, JPMorgan believes much of the forced selling fueling the recent crypto rout has already occurred. This implies crypto markets are unlikely to see as drastic declines going forward.
Is This Just Another Dead Cat Bounce?
JPMorgan's outlook aligns with analysis from pseudonymous cryptocurrency analyst Dave the Wave. He notes Bitcoin's weekly Moving Average Convergence Divergence (MACD) remains above its baseline - a sign the cryptocurrency is still in bull market territory.
Unlike the dramatic rise outside its Long Ground Cover (LGC) buy zone observed in 2019, the current MACD pattern suggests lower risk of a severe pullback to the LGC support level. Dave the Wave expects the MACD to bounce off its baseline and maintain its bullish stance.
However, other analysts urge caution against prematurely calling a bottom. Bitcoin has seen several short-lived recoveries this year that quickly reversed lower, nicknamed 'dead cat bounces' in trader lingo.
With the Fed still focused on taming inflation through aggressive rate hikes, restrictive financial conditions could continue weighing on risk assets like cryptocurrencies. Sustained upside for Bitcoin may have to wait until the Fed pivots to an easier monetary policy stance.
Lackluster Price Action Despite Positive Developments
Bitcoin's price action has been tepid in recent weeks, struggling to meaningfully recover despite some positive developments.
The largest cryptocurrency recently retreated back to the $27,000 level after briefly spiking above $28,000. This muted move came even as Grayscale Investments, the world's largest cryptocurrency asset manager, announced plans to convert its flagship Grayscale Bitcoin Trust into a spot Bitcoin ETF.
Approval of such an ETF would allow ordinary investors to gain Bitcoin exposure without having to directly hold or custody the cryptocurrency. GBTC shares surged over 50% on the news, but Bitcoin itself saw minimal impact.
This lackluster price action highlights the uncertainty still surrounding the crypto market outlook. Earlier this month, prominent analyst Mike McGlone of Bloomberg Intelligence said $30,000 could be the new $20,000 support level for Bitcoin. But considering persistently hawkish Fed policy, significant upside beyond its recent trading range may remain elusive in the near term.
My Take: Winter is Necessary for Next Growth Cycle
In my view, the ongoing 'crypto winter' should be viewed as a necessary consolidation phase laying the groundwork for the next bull market.
Previous Bitcoin bear markets saw massive drawdowns as the crypto space matured. But each recovery has taken Bitcoin to new all-time highs. There are no reasons why this time should be different.
Powerful network effects, rapidly improving infrastructure, and rising institutional adoption have made Bitcoin resilient. Its monetary properties like a fixed supply and decentralized nature also make it a potent store of value amid global economic uncertainty.
Temporary market cycles shouldn't obscure the long-term potential of borderless, decentralized digital money. While further short-term pain is likely, I remain confident the crypto spring will bloom again in due course.
My Prediction: Bulls Will Wrest Back Control in 2023
Looking ahead, I expect crypto markets will remain turbulent for the remainder of 2022 as the Fed keeps rates elevated. But Bitcoin should regain its bullish momentum by mid-2023 as inflation starts cooling and the Fed reverses course.
By then, the excesses of this cycle should have been fully wrung out. Stronger hands will be in control. With Bitcoin's utility as 'digital gold' proven through its first recession test, investors will once again start pricing in its long-term upside.
Of course, there are still downside risks if the global economy tips into a deeper recession. But I think chances are low the Fed will want to risk that just as the U.S. gears up for a heated 2024 election.
As macro conditions improve in 2023, Bitcoin could embark on its next bull run toward $100,000 and beyond. Patience and a long-term mindset will be key for crypto investors navigating the churn ahead.
Will We See Sub-$10k Bitcoin Again?
Bitcoin's lowest point in its last bear market was around $3,100 in December 2018. With the cryptocurrency landscape radically changed since then, can we realistically expect such a dramatic plunge during this cycle's trough?
In my assessment, a drop below $10,000 for Bitcoin is unlikely except under extreme circumstances like a global financial crisis. Here is why I think its downside is limited this cycle:
- Greater institutional adoption provides a solid investor base
- Market structure improvements reduce systemic risks
- Mainstream awareness makes ultra-cheap prices less likely
- Central bank policies are more inflationary, boosting Bitcoin's appeal
- Prior bear market low was an outlier not matched in other cycles
Overall, while historically deep pullbacks are possible in theory, Bitcoin's fundamentals and the macro backdrop suggest significantly lower odds of a over 90% peak-to-trough decline this cycle.
How Low Can Alts Go in the Crypto Bear Market?
The altcoin market has been hit even harder than Bitcoin in the current downturn, with many smaller tokens dropping 90% or more from all-time highs. Can these speculative assets keep plunging as the crypto winter drags on?
There is certainly scope for more pain, but some factors may limit just how low the most promising altcoins can go:
- Solid project fundamentals create valuation floors
- Exposure to growing Web3 and DeFi trends
- Increasing venture capital provides stability
- Loyal retail communities unwilling to capitulate
On the other hand, overhyped altcoins lacking utility face risks of failing entirely in a prolonged bear market as funding dries up.
As always, crypto investors must do their diligence and avoid overexposure to unproven assets during this risky period for the experimental side of the market. The altcoin carnage is unlikely to spare even quality projects, but winter will separate the wheat from the chaff.