Sam Cooling
With markets in panic as crypto assets continue to hit the deck in face of significant industry headwinds, many are wondering whether Bitcoin (BTC) will return below $20,000.
While this might be on the cards, all hope is not lost – as there are fundamental reasons that this crypto crash could mark the end of the long bear market.
Sentiment is once again on edge as Federal Reserve Chairman Jerome Powell returns to Congress in a few hours to speak to the House of Representatives’ Financial Services Committee.
Markets are awaiting further clarification on the Fed’s position in the face of stubbornly high core inflation.
Tuesday’s message to the Senate Banking Committee seemingly confirmed expectations that interest rates would remain higher for longer.
With players now pricing in the prospect of a 50 basis point interest rate hike in the coming weeks, it seems Powell’s dovish tone in the New Year may have been short-lived.
Indeed, with Friday seeing the release of February’s US unemployment data, markets are desperate to see whether fears of fluke economic growth in January could be true.
“To get inflation down to 2.2%, based on history, unemployment would have to go to 10.6%."
Both Sen Kennedy & Jerome Powell could be right.
— Patrick Bet-David (@patrickbetdavid) March 8, 2023
Besides Powell’s pursuit of mythical 2% core inflation, crypto markets are facing uglier headwinds as the Silvergate crisis worsens.
The crypto banking infrastructure provider announced an immediate winding down of banking operations.
With a voluntary liquidation of the bank and a discontinuation of the Silvergate Exchange Network (SEN) – many wonder how big CEXs in the industry will adapt.
Bitcoin (BTC) Facing Challenging Price Action
As markets take stock, Bitcoin (BTC) continues to hammer down as price action becomes perilous, with New Year’s remnant rally structure on the precipice of complete breakdown.
And taking stock of bearish signals from the MACD, a continuation of exchange inflows on-chain, and taker-sell open interest stacking up – the message from the markets seems to be that Bitcoin will push down further.
Imagine getting scared and leaving the market every time #Bitcoin retested the bearish Mayer band. How rich do you think the people who got scared at the identical setup during previous cycles are now? pic.twitter.com/K4GBrbrmvZ
— BitQuant (@paraboloic) March 9, 2023
But all is not lost, as despite the strong headwinds and tough Bitcoin price action – there are solid fundamental reasons to be positive about the crypto space this week.
Here are the top four reasons that this crypto crash could mark the end of the long bear markets.
1. Silvergate Could Be The Last Shoe To Drop
While fear engulfed markets last week as news broke that key crypto banking infrastructure provider Silvergate were facing serious financial issues, some in the space believe that this could mark the end of the bear market cycle.
Indeed, after a tumultuous 2022 that saw the collapse of huge projects in the space including Luna, Celsius, and FTX – backroom player Silvergate could mark the final domino of the bear market.
According to published thoughts by Bitcoin Magazine’s Dylan LeClair, the collapse of Silvergate is different to the failures of 2022 – which were largely driven by plummeting digital asset values.
In the case of Silvergate’s insolvency, the collapse was triggered by a run on deposits by big players such as Coinbase in the aftermath of FTX.
This caused serious financial issues for the bank that resulted in the forced sale of debt at a significant loss, driving Silvergate to bankruptcy.
“Silvergate’s share price isn’t imploding due the performance of a crypto token as was the case for many companies in the crypto winter of 2022,” explained LeClair.
“But rather from a deposit exodus that has forced the firm to liquidate long-duration securities at a loss in order to remain liquid.”
If Silvergate is indeed the final domino in a sequence of centralised entity failures – then it could mark the end of a storm that has gripped the industry for more than a year.
And while it may take time to rebuild a suitable back-end settlement network for crypto institutions to replace the now defunct SEN network – this isn’t the end for the industry – far from it.
2. A Final Dip Below $20k for Bitcoin (BTC) Could Flush Out Weak Hands
With Bitcoin (BTC) heading to the downside, the next local support level sits perilously about $20k at $20,500.
In the event this support level fails, Bitcoin could see a return back below $20,000 – a key psychological price level that would like shake out any remaining weak hands among holders.
Indeed, Bitcoin has been caught in 22 days of sell-off posturing on-chain, with the net position change for exchange flows only just starting to see inflows of BTC slowing.
This sell pressure seems largely to have come from supply last active either 2-3 years ago (2021 cycle purchases) or supply last active 1 week – 1 month ago (likely overeager bulls) – as shown by the iconic HODL waves chart below.
A dip below $20k would send the last of the 2021 weak hands and overeager bulls running for cover.
And this feeds into the Brightside: The overall Bitcoin accumulation picture is improving, as wallet addresses with balance >1 is now approaching a million ‘wholecoiners’ at 984,583.
Which comes at a time where the majority of long-term Bitcoin holders are in profit.
#Bitcoin almost everyone is in profit if they held. pic.twitter.com/owmEPAr6jQ
— Richard Heart (@RichardHeartWin) March 9, 2023
3. The Biggest Mt Gox Creditor Revealed They Won’t Sell Reclaimed Bitcoin Stack
Mt Gox Investment Fund – the biggest creditor in the Mt Gox legal case – which purchased the claims of investors at a loss due to the Mt Gox collapse all the way back in 2015, revealed this week that it has no intention of dumping soon-to-be-released recovered Bitcoin onto markets.
Instead, the fund claims it will be holding them for the long-term as part of a wider investment strategy.
Mt Gox Investment Fund stands to collect around 90% of the planned $3bn disbursement.
#MtGox largest creditor will not sell it’s returned Bitcoin. pic.twitter.com/3bKuf0UeKv
— tedtalksmacro (@tedtalksmacro) March 9, 2023
The seven-year-old case began in 2015 in the aftermath of one of the industry’s biggest-ever exchange heists, where it was revealed that over a period of four years, hackers had been able to drip-steal 850,000 Bitcoin (BTC).
The resulting liquidity crisis led to the Tokyo-based Mt. Gox exchange closing trading and filing for bankruptcy.
But with the court cases finally concluding a $3bn disbursement, patient creditors are now expected to receive a repayment of 21% of their original Bitcoin deposits.
With pay-outs scheduled to begin in September – many worried about what could the release of 142,000 BTC mean for the market?
The omission from the Mt Gox Investment Fund has led many to breathe a sigh of relief, and helps to quell FUD that has surrounded this case for half a decade.
4. Regulator Moves Are Heralding in a Mature Crypto Industry
Many have felt in recent months an onslaught of assaults against the crypto industry from regulators worldwide, none more so than an increasingly hostile Securities and Exchange Commission under the leadership of Gary Gensler.
In the past two months, the SEC have shut down staking services on US-based exchange operations such as Kraken, they have begun pursuing Do Kwon for defrauding Luna investors, and have opened a number of investigations into leading firms including stablecoin provider Paxos.
Across the pond, in the UK the Met Police have begun a mass crackdown on unregistered Bitcoin ATMs – which have been targeted by the British Financial Conduct Authority.
And a stone’s throw away in France, it seems new EU MiCa regulations could collapse efforts by Macron to open the country up to crypto innovation.
Despite this, there has been huge positivity around regulatory sentiment in Hong Kong – with the autonomous region now set to open the doors to retail trading of crypto from June – this comes on the back of a greenlight from regulators for the registration of virtual asset service providers (VASPs) in the nation.
Justin Sun and OKX are both moving to register there.
The Hong Kong news ignited an explosion in Chinese crypto markets, and this was fuelled further by speculation that Hong Kong’s crypto ambitions have been seemingly approved by crypto-hostile officials in Beijing.
All of this, while posing significant challenges for compliance, has been welcomed by many in the space – with proper regulatory frameworks long demanded by businesses attempting to mature operations in an ungoverned space.
Indeed, when people talk about mass adoption – new crypto laws is a very big sign it could be knocking on the industry’s door.
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This article was written for Business 2 Community by Sam Cooling.
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