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Anticipating Crypto Crisis: Bitcoin Price Might Drop 35% (BTC-USD)

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S&P 500 (NYSEARCA:spy) and NASDAQ 100 (NASDAQ:QQQ) increased 5% this week, contributing to growing interest in investing in cryptocurrencies that are still under pressure.economical The world situation continues to deteriorate due to rising inflation, which is accompanied by increasing costs of mining equipment.

economic growth of China is the second largest bitcoin mining country, which accelerated slightly in Q3 2022 but remains at a multi-year low. In addition, youth unemployment remains high at 17.9%, and these factors, combined with declining housing prices, could exacerbate China’s property crisis and put severe pressure on the economies of many Asian countries.

As a result, Bitcoin (BTC-US Dollar), Ethereum (ETH-US Dollar), and ripple (XRP-USD). However, despite the problematic macroeconomic and geopolitical conditions in the world, Bitcoin’s price has remained stable and has continued to consolidate in a narrow price range since September 2022.

Source: N_Aisenstadt — TradingView

Source: N_Aisenstadt — TradingView

In this article, we will analyze the reasons that indicate that the Bitcoin price has not yet hit the bottom. As a result, in my opinion, the Grayscale Bitcoin Trust (Storefront: GBTC) and ETFs.

Competition among miners reaches multi-year high

Despite continued downward pressure on the prices of various cryptocurrencies, Bitcoin’s hashrate rose 13.2% from the previous month to reach an all-time high of 257.7 exahashes per second. For those unfamiliar with cryptocurrencies, hashrate indicates the total processing power of the mining equipment used in the process of mining cryptocurrencies.

Source: Author's elaboration based on Glassnode

Source: Author’s elaboration based on Glassnode

However, as the hashrate increases, the mining difficulty also systematically increases indicating how difficult it is to find new blocks and perform the mathematical calculations to receive the rewards. This metric increased by 47.1% compared to the peak reached in 2018. May 2021This period was marked by a significant tightening of China’s policy on cryptocurrency trading and mining, after which mining companies migrated to Kazakhstan and the United States.

The sharp rise in mining difficulty over the past two weeks has been negatively reflected in rising costs of bitcoin mining, reducing cash flow for mining companies who need to buy more powerful and economical bitcoins. I’m here. mining equipment. As a result, this places an additional financial burden on the cryptocurrency mining industry, making it harder for corporate management to find funding for their activities in the face of tightening central bank policies.

Source: Author's elaboration based on Glassnode

Source: Author’s elaboration based on Glassnode

At the end of October 2022, revenue per Exahash hit a multi-year low of 3.44 BTC per Exahash per day, down 44.7% year-on-year. Converting this value from Bitcoin to dollars, the current situation is also deplorable for the industry as one Exahash earns $67-72,000 per day for him. The figure is already below the levels seen at the beginning of Q4 2020 after the halving.

Source: Author's elaboration based on Glassnode

Source: Author’s elaboration based on Glassnode

One of the most important indicators for predicting the price of Bitcoin is the mining pulse, which monitors miner activity and compares the mining interval of Bitcoin blocks to a target value of 10 minutes. If a Bitcoin block appears later than he 10 minutes, this could indicate that the miner has left the network due to the onset of a shock event. As you can see in the chart below, after the Bitcoin price hit a multi-year high, there was a period of bearish sentiment that ended in a dramatic capitulation of miners.

According to my calculations, the next surrender of miners with a 20% increase in block interval to the target value will occur at the end of 2022, Riot Blockchain (NASDAQ:Riot), Hut 8 Mining (NASDAQ:hut), HIVE Blockchain Technologies (NASDAQ:hive).

Source: Author's elaboration based on Glassnode

Source: Author’s elaboration based on Glassnode

Bitcoin price prediction based on mining parameters

Developed and described at Glassnode, the system can estimate the cost of Bitcoin mining using basic parameters such as difficulty and issuance, thus predicting the most likely price range for ‘digital gold’. can and the largest market participants may begin to reach. Pursue aggressive policies to accumulate this asset. For example, the current estimated cost of mining Bitcoin, marked by the pink line in the chart below, is $12,200. Looking at historical data, in most crypto crashes, including those that led to miners surrendering, Bitcoin’s price hit exactly the minimum value inferred by this model.

Source: Author's elaboration based on Glassnode

Source: Author’s elaboration based on Glassnode

Impact of Fed Interest Rates on Cryptocurrency Prices

The Federal Reserve continues to raise interest rates to combat still-high inflation. Rising interest rates typically reduce appetite for riskier assets like Bitcoin, while financial stocks and short-term Treasury bills are in a golden age. As a result, this means that the cryptocurrency industry will likely continue to face downward pressure until at least the end of 2023. The reason for this is the latest. Federal agency forecastwill raise interest rates to a range of 4.25-4.50% by the end of 2022 and to 4.50-4.75% by 2023, the highest rate in 16 years.

Source: Federal Reserve

Source: Federal Reserve

Equity markets continue to react negatively to Fed rate hikes as companies that have aggressively taken out loans in 2020-2021 may suffer worse performance, but are now more optimistic. Need to issue senior bonds with higher coupon rates, thereby increasing debt service burden. For example, the Meta Platform (NASDAQ:meta) and Amazon (NASDAQ:AMZN) stocks came under some of the toughest selling pressure this week as operating profit in the third quarter of 2022 fell compared to the previous year and the previous quarter.

Looking at historical data, we can see that there is a correlation between the Fed’s interest rate and the price of Bitcoin. yes, January 5, 2022The FOMC released its minutes showing the need for rate hikes. On the same day, the price of Bitcoin dropped by more than $3,000, and five days later it fell by about 16.3%.

Source: N_Aisenstadt — TradingView

Source: N_Aisenstadt — TradingView

Looking at the cryptocurrency crash of 2018, the price of Bitcoin continued to fall during the Fed rate hike. However, once the Fed paused his policy tightening in early 2019, the downward pressure on Bitcoin prices ended and the cryptocurrency market stabilized. And by the second quarter of 2019, the price of Bitcoin he reached $12,000, a 275% gain in just four months.

Source: Created by the author based on YCharts

Source: Created by the author based on YCharts

Bitcoin technical analysis

I use the Elliott Wave theory when predicting Bitcoin price movements. This method has proven itself and, when used correctly, is relatively error-free, especially when analyzing cryptocurrencies. From November 8, 2021, the Ⓦ wave is formed in a zigzag (“A”-“B”-“C”) shape, and the correction wave (IV), in which the intervening wave ⓧ is formed momentarily, begins to form. I was. continues to form.

Switching from weekly to 4-hour timeframe, we can see the formation of wave (Y) from 17/10/2022, which is included in the structure of wave ⓧ. We anticipate a high probability of a double zigzag, resulting in Bitcoin price rising from $23,800 to $24,200. This asset correction movement then continues to the $12,700-$13,600 range per BTC, and smart money begins accumulating “digital gold” in anticipation of the eventual global shock wave “V” and Bitcoin formation. Halved by 2024.

Source: N_Aisenstadt — TradingView

Source: N_Aisenstadt — TradingView

Conclusion

Periods of low volatility are very rare for Bitcoin, and periods similar to the current situation occurred before the cryptocurrency’s sharp price collapse in December 2018 and at the start of its epic rally in the first half of 2019. may be observed. Bitcoin’s hash rate rose significantly this week to new all-time highs as the global economy slowed as the price of Bitcoin dropped more than 70% from its multi-year high.

On the one hand, this is a signal that interest in mining the largest cryptocurrency by market capitalization is growing, but on the other hand, it is reducing margins for mining companies that are already experiencing liquidity problems. increase. From a fundamental perspective, the cryptocurrency market continues to correlate with the stock market. Therefore, there are no key prerequisites for an imminent Bitcoin bull market during a period of ongoing Fed rate hikes.

Moreover, the current period of central bank reliance on tightening policies will lead to a reduction in appetite for high-risk assets, including cryptocurrencies. In terms of technical analysis, we expect Bitcoin price to rise slightly from $23,800 to $24,200. However, this is followed by a 40% retracement to a strong support zone formed at the $12,700 to $13,600 per BTC price range.

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