This week there’s been a fierce battle of Bitcoin (BTC) bears over the $29,000 border, and so far they have lost, says EXANTE’s senior analyst, Victor Argonov.
Q2 2021 hedge fund letters, conferences and more
He adds:
It is possible that this event will determine the dynamics of the crypto market until the end of the summer, and maybe even the year. The market drawdown has been going on for more than 2 months, but the June low of BTC - $28,800 - has not yet been overcome. The inability of the bears to push the rate deeper can be perceived by investors as a signal that “the bottom has been reached” and the bear market will end.
Bitcoin Bear Market: Have The Bears Given Their Last Fight?
In many ways, the bitcoin bear market in May-July 2021 resembles the bear market in September-December 2019. From time to time, the leading cryptocurrency rate crashes, bounces, stabilises for a while, and then collapses even deeper again. Over time, the intervals between collapses become more and more, and the depth is getting shallower.
Here are the main bear market crashes in 2019.
- September 26 - $8100 (from $10,000)
- October 6 - $8000
- October 24 - $7,500
- November 24 - $7000
- December 7 - $7200
- December 17 - $6600
- January 2 - $6900
If in September-October the BTC rate collapsed quickly, then in November-December, each new anti-record required almost a month of “preparation”. There were also “unsuccessful” collapses on December 7 and January 2, which did not set new anti-records. The failure of the bears on January 2 was taken by market participants as a buy signal, after which the bitcoin bear market ended and the rate began to rise rapidly.
Now let's look at the main lows of 2021.
- May 12 - $49,000 (from $57,000)
- May 19 - $35,000
- May 24 - $32,400
- June 9 - $31,700
- June 22 - $28,800
- June 26 - $30,100
- July 20 - $29,300
As in 2019, it is more difficult for bears to push the course ... The previous minimum - $28,800 - was almost a month ago. The new collapse has not yet outdone the previous anti-record, and the BTC rate has already (as of July 22) bounced above $32,000. This is the second failure of the bears. The last one was on June 26 and sent bitcoin to the area above $32,000 for almost a month, but a new failure could be the end of a bear market (as in early 2020).
Did Belief in the Fortress of Milestone 30,000 Save Bitcoin?
The levels of $30,000 and a little below are not accidentally the center of the struggle. We as analysts have repeatedly pointed to this figure as the strongest bastion of cryptocurrency. It has fundamental reasons: about how much BTC should cost at the end of the year, if we remove the speculative component of the price.
The “base” price of BTC, determined mainly by the contribution of long-term investors (who are not ready to sell the asset and therefore prevent the rate from falling below a certain level), has roughly doubled annually since 2015. For example, at the end of 2018 during the crypto winter, BTC was worth about $3500, at the end of 2019 after a bear market - $7000. At the end of 2021, its estimated price should be at least $28,000-30,000.
Such extrapolations do not always work. But today it is important that many analysts and investors are aware of this pattern and are guided by it, avoiding selling coins at lower prices. Moreover, the very repeated mention of this level in analytical articles led to the fact that many market participants believed that the bottom is exactly there. Therefore, they also refuse to sell.
In fact, the bears are opposed by the investors' belief in the impenetrability of the $28-30 thousand levels, and now this belief has only intensified.
Politics Has Less Impact
An interesting feature of the recent collapse is its relatively weak connection with political events. News from China has ceased to particularly affect the market: investors have already come to terms with the fact that in the Middle Kingdom things are not very good with cryptocurrencies. The importance of the EU initiative to ban anonymous BTC transactions should not be overestimated either: according to lawyers, even if it is approved, it will take years before the relevant laws are passed. During this time, a lot can change. Other factors in the BTC crash were purely economic: the US stock market crash on Monday and the Grayscale Bitcoin Trust unblocking 16,000 BTC on Sunday.
By and large, the above factors were just excuses. Bouncing back in late June, BTC has had a negative trend since early July, and it was only a matter of time (and depth) before a new crash. However, it is possible that this collapse was the last in the series. It is symbolic that the “culprit” of the May collapse, Elon Musk, spoke out in support of BTC on Wednesday, especially accelerating the recovery.
What To Expect Next. Three Scenarios
Without enough headline-grabbing “trump cards”, the bears have not yet been able to bring Bitcoin below the June low of $28,800. Depending on its dynamics in the coming days, three main scenarios are possible for the coming months.
- New rally. If the BTC rate quickly enters the area above $35,000, this may be perceived by the market as a signal for an urgent buy. FOMO investors will play a significant role in this. The bitcoin rate will return to levels of the order of $50,000, and maybe update the April record of $64,000.
- If the BTC rate gets stuck at the current $32,000, then due to the uncertainty of the bulls, it risks remaining in the $30,000- $40,000 range for a long time. Approaching $40,000 will serve as a signal for skeptics to consolidate profits, leading to a correction.
- Continued decline. If the bears take revenge in the coming days and still drop the rate below $28,800, then some rebound is inevitable in any case, but the bear market will continue. In August, we may well be able to see new lows of the order of $27,000- $28,000.
At the moment, of these scenarios, the second seems to be the most probable, but the coming days may change the balance of power.
