ByteTree founder Charlie Morris analyzed four factors that can help understand how Bitcoin and cryptocurrencies have responded to the recent declines, and what is still to come.
The factors are on-chain data, technical analysis, investment flows, and macro trends.
Technical and fundamental analysis of Bitcoin’s price
This analysis shows that it is too late to be cautious, but it is better to be patient. In fact, the network appears absolutely stable, institutional investors have not exited the crypto markets, and macro conditions will improve at some point.
Prices have stabilized over the past week, with a slight increase in confidence in the markets after the end of the hard sell-off period.
Analysis of on-chain data
With regard to on-chain data, the network has seen only a modest contraction compared to past cycles, despite the collapse in prices, and this should be seen as positive given that some of the value of BTC comes from network activity and effects. There is also no significant decline in large-value transactions, which would suggest that institutional activity has remained high.
Miners are presumably scaling back their activity and transaction fees continue to rise, despite lower average individual transaction volumes.
Morris notes that during the current cycle, the price of BTC has become correlated with miner stocks, just as it is in a normal commodity market. From this, he concludes that stocks will struggle to fall much unless Satoshi’s BTC are released into the market (which is quite unlikely).
Technical price analysis
From a technical analysis perspective, weak trends would be deteriorating, while stronger trends are beginning to emerge and becoming a reality over time. Two of these positive trends are Ethereum’s strength and Bitcoin’s strength against Nasdaq (BitDAQ: BTC vs. NASDAQ).
Presence of institutional investors and macroeconomic environment
In terms of investment flows, capital flows in and out of the market have stabilized. However, the discount of GBTC, i.e., Grayscale‘s fund dedicated to Bitcoin, is extensive.
By contrast, macro conditions suggest positive developments for alternative assets such as cryptocurrencies and commodities, with the US dollar still strong. However, if its high is not what it is now, it should come soon.
Adding to all this is the commentary of Bitfinex Market Analysts on yesterday’s trading day:
“Bitcoin and traditional stocks were on the rise immediately following yesterday’s FOMC announcement of its decision to not raise interest rates by 100 basis points and just 75 basis points. This decision, and the way it was communicated, seemed to have quelled some bearish sentiment.
However well the Fed might be at managing expectations, jumpstarting economic growth will require pivoting to investing resources into high-growth sectors like blockchain and decentralized technologies. Still untapped and under-commercialized, this emerging sector has the opportunity to transform every major industry vertical.
There is a high chance that the next several decades worth of economic growth will be driven by blockchain-based technology — some of which will be powered by a secondary economy that’s underpinned by digital assets”.