Bitcoin under 20k again. What’s ahead?
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The collapse of Silvergate, a central banking institution that supports crypto exchanges, and the continued aggressive stance of the US Fed have led to speculation of a continued bear market for crypto (and general global financial markets) this year. Investors who remain patient into the second half of this year will benefit the most.
Today, we track key trends that point us toward more pain ahead for Bitcoin enthusiasts.
1. Silvergate has collapsed, the largest bank failure in the US since 2009
Since 2014, Silvergate Capital Corp has been the main banking institution supporting cryptoramps (conversion of US dollars into crypto and vice versa). At its peak, it supported nearly 1,600 crypto exchanges, financial institutions, hedge funds and others. The collapse of FTX which led to steep withdrawals from the bank has created a bank driven situation which ultimately led to its demise.
Silvergate’s share price in the last 6 months:
Source: Financial Times
This has created new uncertainty among crypto exchanges and investors as other US banks continue to be wary of crypto partnerships. This is also likely to lead to more regulatory scrutiny of banks’ exposure to crypto in general. Global stock indices and Bitcoin (naturally) have fallen significantly since.
2. The US Fed is intensifying its fight against inflation that may not have peaked
The US central bank gave indications this week that future interest rate increases may go higher this year to fight inflation. After raising rates by 25bps last round, a 50bps rate hike this month is highly likely (62%) according to the economist consensus. This means that the softening of the Fed’s stance is still months away. This could be in preparation for an impending recession in the US – if this happens, risky assets like crypto will quickly lose a lot of value.
Source: CME Group
3. The US dollar is regaining strength
DXY, the US dollar index, is regaining some lost ground this month. From the local highs of October-November, it has been on a downtrend that led to a rally in Bitcoin early this year. Now this trend has reversed and is likely to continue as interest rates remain high. As investors get good returns on US dollar deposits around the world, risk assets will see an outflow of capital in the short term.
Source: TradingView
4. Bitcoin whales have prepared for a dump
We cannot fight the whales, but we can carefully observe their movements. The number of addresses with more than 1000 BTC has been reduced since the beginning of this year. This points to a preparation for a quick dump on stock markets (which could happen today).
Source: Glassnode
What can you as an investor do in these testing times?
Preserve and increase your capital: Don’t deploy all your money to crypto just yet. Use the DCA approach to get positions, but wait for a potential low in the markets before deploying them all. The markets are likely to regain strength after June-July this year. Whenever possible, get some value via US Dollar deposits in the meantime.
When you buy, buy Bitcoin: Outside of stablecoins, BTC is still the only way to preserve your positions in the event of a US recession that will affect all markets. Altcoins are likely to bleed more.
Use the promotional code TNM51 on www.giottus.com/profile#promo after registration to get Rs.51 worth of free Bitcoin.
Disclaimer: This article was written by Giottus Crypto Exchange as part of a paid partnership with The News Minute. Crypto products and NFTs are unregulated and can be very risky. There can be no regulatory recourse for losses from such transactions. Do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.
