Bitcoin and other cryptocurrencies: Is a Crisis Possible?

Bitcoin and other cryptocurrencies: Is a Crisis Possible?


The situation is actually the same as we have been facing for the last few weeks: a powerful and imperious decline in indicators affecting all risky assets. Historically, the concept of Risk off has been used to refer to those phases during which people get rid of stocks and other risky assets, taking refuge in assets that are considered more reliable for crisis times. However, this movement surprised the majority, given that many already thought they had found a bottom in the region of $30,000 for Bitcoin, which was openly denied by today’s market movements.

Financial markets are suffering, and here’s why:

  • Inflation

The data continues to be relentless, and someone should call to account those central banks who said that this is a transient phenomenon and is under control in any case. Today it is clear that this is not quite the case, and restrictive measures are proving tougher than predicted just a few weeks ago.

This situation continues to put bearish pressure on all financial markets, which are still in the deep red zone, despite the fact that they are already very far from the levels of the end of 2021.

  • Conflicts

It seems that conflicts are not abating, although there are positive trends. However, we are still in “muddy waters”, since even such a decision will probably take several weeks before the situation, at least economically, returns to normal.

In this case, it is difficult to imagine that relations between Russia and the Western bloc can return to the previous ones, at least as far as gas is concerned. And this is a source of further concerns at the macro level.

  • The nightmare of the recession

And here, apart from some accounting tricks, the situation seems to be a compromise. All institutes of economic statistics have revised downwards their once high-profile forecasts of a rapid economic recovery after solving the COVID problem. This is not the case: China continues to pursue a zero COVID policy, and the complications in the international supply chain do not seem to be abating, at least for the time being.

How are things in the markets

According to it’s bad, because cryptocurrencies have already opened a quiet weekend of fear, a weekend during which the markets poured all their anxiety into the only market open 24 hours a day.

However, when the exchanges opened on Monday, the cyclone hit the stock markets as well. FTSE MIB declined by 3 points, as did the DAX, S&P 500 and Dow Jones (although the latter is slightly better). A frightening situation indicating that the markets are still in complete panic, with some features, as we will see in a while, also for the cryptocurrency market.

  • Practically only Bitcoin holds

A new sale on the cryptocurrency market, Bitcoin and some others are holding, and a very bad situation has arisen around Ethereum and a security situation that needs to be monitored in the coming hours and days.

The markets are still quite nervous: we talked about this during the last short recovery, we will continue to talk about it. Macro situation continues to dominate markets that do not know which way to move, while some opportunities may have already been created or may appear in the near future.

  • Everyone is Looking at Ethereum

During these hours, everyone, or almost everyone, is looking at Ethereum, which is at very low price levels and suffers the same losses as the rest of the alt sector. Many point the finger at the difficulties that the project may face at the Merge stage, which is a catalyst for long-standing concerns.

Ethereum is the biggest source of concern and is dragging down the entire DeFi market.

All this is compounded by further concern for investors, who at the level of $ 1,500 are beginning to prepare for very difficult times (unless there is a sudden recovery), as well as the classic seasoning of tension passing through the markets, not only of cryptocurrencies, but of the whole world. We will need several coordinates to understand what to do and how to act in such an environment. Let’s continue in order:

  • Ethereum is among the worst at the end of the day
  • Bitcoin remains the safest haven

Now it has become something of a certainty. When the markets get very nervous, Bitcoin turns into a kind of safe haven. It held above $23,000, despite the fact that panic aftershocks were aimed at further sale. A good sign? For us, yes, although the market will need to be monitored in the coming weeks.

  • The return of the altcoin “sector”

With a few rare exceptions, such as Tron (drugged by USDD) and BNB, almost all major networks are losing or have reached double-digit losses. This has also become apparent in recent weeks: when investors panic, they unceremoniously push the sell button. While there is uncertainty in the markets, it is still better to trade very cautiously in this sector. Those who are looking for a relatively safer sea should pay more attention to the BTC with greater confidence. Even with the risk of missing a rebound, which, according to statistics, may be stronger for larger losers. A homogeneous trend, reminiscent of bygone times.

What will happen to Ethereum?

This remains the question with which we conclude the preliminary analysis of the next market sell-off, another one during the weekend of a relatively quiet week.

There was a deposit on Lido Finance (which still persists), which pushed the value of stETH to -7% of ETH. According to reports, Alameda Research got rid of important positions, just as problems may arise at Celsius, where important amounts will be stored. Currently, the problem seems to be at least partially solved, but the situation remains the subject of monitoring.

A DeFi disaster? It may be too early to talk about this, but some protocols that grew too fast during the last bull market are paying a significant price in the form of losses. As we have said several times during this mini-application, it is better to avoid excessive risk, because when the markets “bleed” at these levels, it becomes very difficult to find the bottom. Always keep your eyes open, do not run after everything that may seem favorable.

Europe is also under strain

We are faced with a developing macroeconomic situation, when Europe finally decided to raise rates and end the sovereign bond purchase program. The situation is serious, not too serious (at least, hearing the comments of some politicians who don’t seem to have a good economic sense), and this will lead to further concern in the coming weeks.

Mainly, the focus is on the situation in Italy, where the spread is growing, and the ailing European economy has become a ball and chain for the ECB in its monetary policy tightening programs. Ideal markets for risk takers, but not for those who want a quiet market.

Is it really over for Ethereum? In the meantime, those who think so, in our opinion, sin with excessive pessimism (or optimism, depending on which side to look at it). Historically, during bear markets, Ethereum has always fallen more than Bitcoin. Let’s see where it takes us this time.

The above problems will have to be solved gradually, which will take not one day, not one week, but, in all likelihood, several weeks of gradual adjustments. We may be close to the bottom, but at the same time we see significant volatility.