Is the Crypto Market in Recovery or Is There More Pain to Come?

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By Frank Corva

To buy the dip or not to buy the dip? This is the question.

And it’s a tough one to answer when the dip just seems to keep on dipping.

Crypto influencers and industry pros alike claim the crypto market is oversold, but it’s impossible to know for sure if we’ve hit the bottom.

Sure, Bitcoin’s (BTC) price is about 70% off of its all-time high while most other digital assets are 75% to 99% off of their all-time highs, but this doesn’t mean the prices of these assets can’t fall further.

Strong headwinds

In a recent interview, famed investor and BTC holder, Stanley Druckenmiller, shared that in his 45 years in the markets, he’s never seen so many headwinds converging all at once.

Some of these headwinds include: the energy crisis that the war in Ukraine has caused; the Fed pulling both QT levers simultaneously, both raising interest rates and rolling assets off of its balance sheet; extremely high consumer debt levels and a host of other issues.

Druckenmiller claimed that it’s all but inevitable that the United States enters a recession, and that it’s not a question of if, but when.

In almost the same breath, though, Druckenmiller said that he can’t imagine a world in which blockchain isn’t more prevalent in the years to come.

Previous crypto cycle lows

After the 2013 and 2017 crypto bull runs, BTC’s price retraced over 80% from its highs within a year.

And after the 2017 crypto bull run, Ether’s (ETH) price retraced almost 95% from its highs within a year.

Post the 2020-2021 crypto bull run, BTC’s price has only retraced 75% from its highs and ETH’s price has only retraced 82% from its highs.

So, if prices for BTC and ETH from past bear markets are any indication of what’s to come in the coming months, then you may want to brace yourself for some more downward pressure.

Is this time different?

The 2020-2021 crypto bull run brought digital assets closer to the mainstream.

Major companies like Tesla (TSLA) and MicroStrategy (MSTR) put BTC on their balance sheet.

Celebrities — from Matt Damon to Serena Williams to Snoop Dogg — publicly endorsed crypto platforms, tokens and NFTs.

With so many more major pools of liquidity drawn to digital asset markets as well as there being a much brighter spotlight on crypto, will the prices of blue-chip crypto assets retreat to the extent that they have in the past? It’s hard to tell.

There was a new dynamic at play in this past crypto bull run.

The financialization of crypto assets

While more money came into the crypto space in the past two years, a lot of that money didn’t just buy crypto assets.

Instead, many investors opted to buy leveraged derivative products of crypto assets. This caused market drawdowns — even during the bull market — to be more pronounced.

Crypto assets are highly volatile to begin with. When you add leverage into the mix, they become even more volatile. And when enough people trade crypto with leverage, market crashes tend to occur.

Back to the questions at hand

So, have we seen the worst of the fallout from the cocaine-turned-heroin party?

Is it time to buy these fresh lows in the crypto market knowing that the macro landscape is looking quite grim and unpredictable, yet that blockchain technology is on the rise? 

The answers to these questions are ultimately up to you. 

But if you do believe that “Fortune favors the brave,” as Matt Damon proclaimed only one month before crypto markets began a six-month downtrend, then you may want to scoop up some digital assets at these discount rates. 

If not, you may just want to sit tight until these headwinds reside and crypto markets find more positive direction.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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