It is now official: we are no longer dealing with a correction but with a real crash in the crypto market. Bitcoin is down around 43% from its all-time high in November, while Ethereum is doing even worse after posting a decline of almost 45% over the same period. And the damage elsewhere in the cryptosphere is far greater than among legacy players, with recent high-flyers Cardano and Solana losing almost 60% of their value in a matter of weeks.
But what are the causes of this carnage, and when, if ever, will we see a resurgence of digital currencies? Are we looking at one of the more unique opportunities to buy the dip, or is that just the tip of the iceberg? Before we could get into any of this, we first asked a team of analysts to Libertexone of the leading online CFD brokers who recently launched an attractive zero commission proposition on crypto CFDs, to help us analyze the admittedly sparse longitudinal data available to understand how this nascent asset class tends to perform include.
Dancing to the bit of the same drum
Whatever the altcoin champions would have you believe, bitcoin is largely the trend setter in the cryptocurrency space. When the original coin skyrockets, the rest of the market skyrockets to the moon. And when it crashes, the others tend to fall even harder. Take a look at these recent charts and see for yourself:
Naturally, this is not the first time such a pattern has been observed. A similar behavior can be observed during the last major correction of summer 2021:
Once Bitcoin starts to take a significant step, the rest of the established coins tend to follow. Of course, there are always exceptions, such as when revolutionary new projects like Solana and Cardano are launched, but for most of the market, the trend continues.
We can even see a comparable trajectory from the initial crypto bubble of 2017/2018 (although a little less homogeneous):
At the bottom of the mine
It’s all well and good to use BTC as a leading indicator, but the question remains: how much worse can the crypto situation get before prices recover? Well, the data suggests we’re at or very close to bottom.
Now everyone knows the stories of countless investors who got burned trying to call the bottom. Even though some brokers try to help them stay afloat by providing ideal trading conditions, Libertex seems to be the only one at the moment to offer truly phenomenal trading conditions that have not been seen before in the market by completely reducing commission, swap and exchange fees to zero on all crypto CFDs available on its platform. And while markets can indeed stay erratic longer than you can stay solvent, with finite commodities like Bitcoin, intrinsic value is much more predictable.
To establish the fair value of Bitcoin, we must first look at the mining market. Remember the Chinese ban on crypto mining introduced around June last year? The ensuing decline in calculation difficulties caused prices to explode in the short term, reaching a low in late July. But then something interesting happened: BTC (and the rest of the digital currency space) started to rise rapidly as new players entered the mining game and started increasing the difficulties.
Keep holding on
Fast forward to today: mining difficulty is at an all-time high and shows no signs of changing. Lagging behind their competitors in the developing world, Western miners are buying up the latest ASICs in an effort to maximize their production and dominate the mining market.
In fact, Marathon Digital recently took out a $100 million loan to buy a fleet of the latest S19 XP machines, which boast an incredible 140 Th/s capacity. After all that investment, the low profitability brought on by high difficulty and low prize money must weigh on Marathon’s management. With an intrinsic cost to mine 1 BTC of around $34,000 (at current electricity prices), any drop below this level will surely see miners start hoarding coins in anticipation of higher prices.
This action is then likely to be mirrored by regular whales and HODLers, as selling unnecessarily at these levels makes little sense financially. Ultimately, the laws of supply and demand dictate that this massive hoarding should in itself drive Bitcoin prices higher.
The fundamentals can tell us what should happen, but if we want any clue at the moment, we have to look at the charts. With that in mind, let’s take a look at the recent chart below and see what clues we can find:
We are currently at strong support at $35,000, with an even stronger level below that at $30,000 (the same July 2021 lows mentioned above). Moreover, the daily RSI (20%) indicates that BTC is extremely oversold, thus predicting a return to the upside in the medium term.
Nevertheless, there is still every chance that we will see a long period of consolidation, much like at the beginning of the month, when the price impulsively dropped from $48,000 to $40,000. On this occasion, BTC was repeatedly rejected during the 100-day MA before finally capitulating and falling further to current levels. This time, however, we expect the eventual move to be upside rather than a fresh leg down.
Considering all of the above, the case that the bottom is here or at the very least close is very compelling. After all, how long can prices really stay at or below the actual cost of production? All the conventional wisdom would say that it’s only a matter of time before an upside correction hits, which makes current levels an incredible buying option. But deciding to invest is only part of the equation, where you buy can be just as important to your eventual gains as when you pull the trigger.
Suppose you manage to time the perfect market bottom and decide to buy $1,000 worth of Bitcoin. Foreign exchange fees, commissions and swaps charged by many brokers could end up reducing your investment to as little as $950. It might not seem like a lot at first, but if the value of BTC then increases by 10 times, that’s $500 you’re missing!
This is why it is crucial to choose a broker that charges minimal fees, such as Libertex, whose clients do not have to pay any exchange, commission or swap fees on cryptocurrency CFDs. Just the spread and nothing more. Obviously, this can translate into huge savings when users make multiple trades, high volume trades, or hold positions overnight. It only takes a few seconds to register on Libertex and discover a wide range of crypto CFDs with zero commission, swaps or exchange fees on one of the most popular platforms.
With over 24 years of experience in the financial markets and more than 40 international awards, most recently Best Trading Platform (Forex Report, 2021) and Most Trusted Broker of Europe (Ultimate Fintech, 2021), Libertex has been the a leading platform combining market expertise with cutting-edge technology, designing fast and user-friendly software that makes the market accessible from any device, anywhere, anytime with just an internet connection. Used by everyone from professional traders to complete beginners (who can start with a hands-on demo account), Libertex offers a comprehensive range of tools and information that clients can use on the platform when trading or trading. investments.
Risk warning: CFDs are complex instruments and come with a high risk of losing money quickly due to leverage. 75.3% of retail investor accounts lose money when trading CFDs with this provider. You need to ask yourself if you understand how CFDs work and if you can afford to take the high risk of losing your money. Cryptocurrency instruments are not available to retail clients in the UK.
Available for retail clients on the Libertex trading platform.