Amid a predictable deluge of obituaries, Bitcoin bulls are set to write off the rest of 2022 as well as the first half of 2023 and pin their hopes on the next halving event.

Sections of the financial media continue to write Bitcoin obituaries in sepulchral tones as the world’s first cryptocurrency undergoes a painful but typical correction process. In fact, according to the 99bitcoins chart, the cryptocurrency has now been declared dead 459 times since its inception.


In stark contrast to these bleak statements, the Bitcoin ecosystem is actually gaining prominence in the broader crypto sphere as altcoins continue to suffer from a massive outflow of capital.

Intel AXG Custom Compute Team Begins Blockscale ASIC Shipments, But Is It Too Little Too Late?

As the tweet above illustrates, Bitcoin’s social volume is seeing a resurgence as the alt-coin sphere crumbles and burns.

This, however, does not mean that Bitcoin is about to resume its long-term upward trend anytime soon. Let’s go deeper.

Understand where things stand

The fate of Bitcoin is inextricably linked to that of growth-oriented, high-beta US stocks, at least in the short term. Just as growth stocks derive their investment thesis from the present value of future cash flows, Bitcoin depends on its future rate of adoption to substantiate its inherent valuation thesis. It is because of this dependence on future cash flows that growth-oriented US equities have been hit so hard that the Federal Reserve has embarked on a path of higher rates in an attempt to curb the downturn. ongoing inflationary impulse hammering aggregate demand into the US economy.

For the uninitiated, as interest rates rise, the discount rate used to calculate present values ​​of future cash flows also increases, thereby reducing those present values ​​and making such stocks less attractive. Since Bitcoin is also dependent on a positive outcome to its future adoption rate to justify a high valuation, it is natural for investors to treat cryptocurrency as a major risk asset, resulting in multiple waves. synchronous sell-offs across the crypto and equities sphere this year, and pumping the correlation between the two asset classes to an all-time high in the process.

Is the Pro Shares Short Bitcoin Strategy ETF (BITI) about to mark a cyclical low for the world’s first cryptocurrency?


Nonetheless, as the excerpt above shows, the latest 30-day correlation between Bitcoin and the S&P 500 Index has declined significantly over the past few weeks. Namely, in May, this correlation hovered at 82%, highlighting the fact that more than 80% of Bitcoin’s movements were explained by the corresponding movements of the S&P 500 index. However, towards the end of June, this correlation collapsed 46%!

There is of course a simple explanation for this result. During the second half of June, US equities experienced a major bear market rally. However, Bitcoin was unable to follow suit due to an avalanche of liquidations and bankruptcies in the decentralized finance (DeFi) space, which hammered sentiment and prevented the crypto sector from rebounding. As a result, the correlation between US stocks and Bitcoin fell. However, this does not mean that the synergistic relationship between the two asset classes is over.

Why Bitcoin Bulls Should Focus on the Next Halving Event and Ditch Hope for a Short-Term Rebound

So far, US stocks, Treasuries, bonds and Bitcoin have continued to be hammered by the Federal Reserve’s hawkish stance. However, an even more powerful threat is emerging: recession. For the record, the price/earnings ratio (P/E) is often used to quantify the valuation of a stock. Until now, equities were downgraded, meaning the price component of the P/E ratio was falling, reducing the overall foam in valuations. Now, however, the earnings component is poised to fall off the proverbial cliff as recession claims grow ever louder. In fact, for many analysts, a recession is not a question of if but when.

Against this backdrop, leading Wall Street analysts, including Morgan Stanley’s Michael Wilson, expect the S&P 500 index to carve out an ultimate low at around $3,000. Therefore, given the high correlation regime between the two asset classes, investors should expect a significant drop in the price of Bitcoin, in line with that of the S&P 500 Index, when the dreaded recession hits.

Bitcoin technical analysis

The table above details the main technical parameters of Bitcoin. As is evident, the world’s first cryptocurrency is in a medium-term descending channel. Critically, the price of the cryptocurrency has recently found support in a major demand area (highlighted in the cerulean color). When a recession materializes, we expect Bitcoin to break through this zone and bounce to the next big one (highlighted in dark green). Incidentally, such an eventuality would reflect the historical norm where Bitcoin has achieved a correction of around 80% from its previous all-time high in each of its major bearish phases since its inception. Bitcoin recorded an all-time high of around $69,000 in 2021. As a result, an 80% correction would put the cryptocurrency’s floor at the $13,800 price level – right in the middle of the deep green demand zone .

This brings us to the crux of the problem. The Atlanta Fed’s GDPNow model projects that US GDP fell by more than 2% in the second quarter of 2022. Given that the first quarter has already seen negative growth, the technical definition of a recession will have been met if the prediction of the Atlanta Fed model comes to fruition. Nevertheless, many analysts expect a recession to materialize towards the end of 2022 or the beginning of 2023. The best bet for risky assets, including Bitcoin, is for the onset of a recession in this time, which would allow for a rapid fall and devaluation, paving the way for a broad-based rebound towards the end of 2022 and into 2023. If, however, the onset of an economic downturn occurs later, assets at risk will remain on the proverbial hot coals for the next few months, leading to frequent waves of liquidation and much more pain for investors.


Either way, Bitcoin bulls should ditch hope for an immediate rebound and instead focus on the next halving event, which is currently scheduled for April 2024. four years. Since it is the only source of supply increase in the Bitcoin ecosystem, the halving event and the associated drop in supply addition rate has always heralded powerful gains for the largest cryptocurrency in the world.

By the second half of 2023, we will likely be out of a recession, allowing investors to focus on the next halving event. This, in our view, would be a much stronger foundation for heartbreaking gains that Bitcoin bulls are still expecting. Until then, batten down the hatches and hang in there!

#predictable #deluge #obituaries #Bitcoin #bulls #set #write #rest #pin #hopes #halving #event

Add Comment