Holding The Line

Bear markets are normally the time when traders overreact to any piece of bad news. Events that would barely cause a flinch in a bullish market can drive markets down significantly in a bear.

It is therefore somewhat unexpected to watch the resilience of crypto prices over the past days. Despite an ongoing war, the confirmed spectre of incoming Federal Reserve rate hikes and increasing regulatory pressure coming from the US and elsewhere, BTC, ETH and even the top DeFi projects have seen growth over the past days.

Could this just be a relief rally after a significant drop from year-end highs? Looking back at 2018, a BTC relief rally in February of that year saw BTC’s price go from <$8k to $11.5k. However, from there on, it resumed its drop, going down by 70% where it finally bottomed out.

Trading is a game of probabilities and history is only one data point in any given scenario, albeit an important one. In 2018, BTC crashed without anywhere near the macro uncertainty that exists today. In 2022, major fundamental forces are at play, yet markets hold.

There now is an ecosystem of crypto products which directly impact the whole market. The recent announcement that Terra USD, one of the most popular stablecoins in the space, would now also be backed by BTC, is a case in point. With significantly more capital available to deploy inside Crypto, cycles can turn much faster as money flows chase opportunities. That money does not just leave the market, it remains inside, waiting to be deployed. The length of Crypto Winter might therefore be shrinking.

Furthermore, Crypto has become part of the global conversation in ways that were previously unthinkable. The Ukrainian government is collecting crypto donations, speculation abounds whether Russia will be using Crypto to circumvent sanctions, and even the CEO of Citadel, previously a major crypto sceptic, announced that Citadel will be entering the market.

So far the line holds, and re-enforcements may be on the way.