Jamie McNeill
The prices of leading cryptocurrencies remain relatively weak, with Bitcoin still hovering around $19,000 and ETH at $1,300. This has been a huge concern for short term speculators, who have largely been taken to the cleaners. Others looking at the markets are intrigued by the possibility that the recent price weakness may soon be coming to a close.
Why are the prices so weak?
The reasons for why cryptocurrency prices have been so weak recently are manifold.
We are currently in the depths of a bear market, so one shouldn’t expect to reach the moon anytime soon, and any rises that the market does experience will typically be short lived bull traps – this trend will continue until the market confirms otherwise.
Investors with conviction ought not be concerned by short term volatility; assets that grow exponentially often fall out of their parabolas.
Buy the rumour, sell the news
As is often the case in the world of crypto, the markets have been accustomed to reckoning with the mantra of “buy the rumour, sell the news”.
The most significant news of the past few weeks in the crypto industry was the Ethereum merge, which has been anticipated almost since Ethereum’s inception.
The price didn’t rally that much into the merge, which is understandable given the depths of the bull market that we are currently in, but since the merge that price has fallen dramatically.
At $1,300, ETH is now priced more cheaply than it was during the peak of the previous 2017-2018 cycle.
It isn’t particularly surprising that the price of ETH has collapsed after the merge, since the next Ethereum update to come (Shanghai) is likely to be extremely bearish for the price, at least in the short term.
Rising geopolitical tensions cause price weakness
The war in Ukraine is ongoing, and news this week that Putin has decided to initiate a partial mobilisation of Russia has heightened the degree to which markets are feeling uncertain.
The conscription was originally thought to be just for 300,000 extra soldiers (a large increase from the 190,000 that were originally sent to Ukraine), but it seems that the intentionally vague stance of the Russian government provisions for far more people to be conscripted than that.
The transition from a normal economy to a wartime economy is likely to put further strain on Russia, which is suffering the consequences of harsh sanctions from the West despite the fact that
Could the end of the bear market be in sight?
Many have wondered whether the end of the bear market might be in sight. After all, when one compares this bear market with previous bear markets, it is has already lasted longer – this difference is even more pronounced if one considers the peak of the Bitcoin market to have been in April rather than in September.
However, the markets remain bearish going forward, with little optimism on the horizon.
Market cycles in cryptocurrency thus far have only had to contend with bull markets in a larger macroeconomic context, but now that many countries are in recession, dealing with rising inflation, devaluing currencies and soaring prices in commodities markets, things don’t look remotely bullish for the cryptocurrency markets.
Not only this, but there are still significant discounts against NAV for major blue chip digital assets.
The Grayscale discount is the most significant, since institutions would rather buy Bitcoin via Grayscale thanks to the ease of compliance.
More importantly, institutions who choose to buy BTC from Grayscale will be able to acquire far much per dollar that they expend.
The Grayscale discount currently stands at over 35%, and many analysts are sceptical that there will be a bull market before this corrects itself.
#bitcoin made a new all time high on the discount chart. pic.twitter.com/0nsTPwiHOB
— Richard Heart (@RichardHeartWin) September 24, 2022
During the previous bull market, there was typically a premium on GBTC over BTC, and the difference from NAV has been one of the most crucial indicators when it comes to gauging the interests of institutions and their market sentiment.
There are other derivatives that are also trading at a significant discount to NAV that ought to provide food for thought. The most significant in Ethereum is the discount of stETH against ETH.
Since it will be possible to redeem stETH after Shanghai, one would have thought that the peg ought to have maintained itself fairly well.
Instead, those who were planning for the short term found themselves punished by holding stETH, and those who are planning for the long term have been rewarded with an extra few percent on their Ethereum purchases.
Some analysts, such as the anonymous on-chain analyst Plan B, remain extremely bullish on the price of Bitcoin forward and have commented that despite the market downturn, there is nothing to be concerned about – those who are investing with the long term in mind ought to be emboldened by the continued and sustained growth of Bitcoin as it becomes more adopted and accepted throughout the world.
#bitcoin 200-week moving average ATH and rising pic.twitter.com/mYUlB35jdW
— PlanB (@100trillionUSD) September 26, 2022
Relevant news:
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This article was written for Business 2 Community by Jamie McNeill.
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