The past week was a harsh one for the cryptocurrency market. Despite analysts expecting crypto prices to adjust, this adjustment came stronger than expected for most investors. Bitcoin dropped from a high of $25,000 and reached a low of $20,800, losing around 17% in a matter of 2 weeks. What happened to cryptos so far? Are cryptos bearish again? Should you sell your cryptos before the next bear market?
What Happened to Cryptos so far?
The crypto market’s cap was almost around $3 trillion back in November 2021. However, prices started to tank and reached around $820 billion in mid-June 2022. Most tokens lost on average around 72%, the fact that drove investors away. There were many geopolitical factors that also contributed to this demise, such as the war in Ukraine and the collapse of many well-known cryptocurrency exchanges.
Since then, cryptocurrencies have started to recover slightly. The current market cap surpassed back the $1 trillion mark in a bid to recover.
Why are Cryptos still down?
If we look again at figure 1, we can see that cryptos are slightly down, but not as much as before. This “down” trend is part of a correction from the previous uptrend from the bottom. With a market cap just above $1 trillion, we are around 20% higher than the bottom. However, some analysts are predicting prices to fall back and even breach floor prices. Here are a few reasons for the new crypto crash:
- A bear market is a long-term event that does not allow for sustained bullish developments. Normally this should last another 1-2 years. That’s what past experience tells us. Therefore, sustained price increases are also very unlikely in the short term.
- The hype surrounding the Ethereum Merge seems to be leveling off. The closer the event gets, the less bullish investors seem. This is explained by the phenomenon “Buy the rumors! Sell the news!” , which is always the case in the crypto market.
- A further increase in key interest rates by the FED could be imminent in November 2022. This is where the rumors thicken. In this case, the rumors of a potentially negative event are causing the markets to increase selling and falling cryptocurrency prices.
Will Cryptos go up soon?
Currently, cryptocurrencies such as Bitcoin are attempting to recover from the crash that occurred last week. If we take a look at Bitcoin’s price action in figure 2, we can see a clear retracement when plotting the Fibonacci retracement tool towards the 50% mark. In fact, most cryptocurrencies are doing the same behavior. In figure 3, we can see Ethereum’s chart, which looks very similar to Bitcoin’s, which still has a market dominance of around 40%.
The retracement higher is a good thing, however, we need to keep a close eye on that 50% retracement mark. This is because prices might retrace lower and continue the crash. The sentiment in the crypto market is currently somewhat negative, and the continuation of the downtrend might be an option if cryptos fail to redress higher soon.