- The cryptocurrency ecosystem officially entered a bear market last night as Bitcoin closed the week at $25,000
- The drop ensures that a lengthy market contraction has begun, aided by the macro environment
- The crypto market has the potential to drop to the highs of the last run
The writing has been on the wall for some time, but Bitcoin has officially entered a bear market after the Celsius crisis helped it close the weekly very much underneath the key level of $30,000. We’ve been saying for some time that $29,000-$30,000 was the significant level that needed to hold in order to preserve hope of a swift reversal, but unsurprisingly Bitcoin hasn’t been able to manage this, and the convincing collapse to $25,000, plus the frankly hideous macro environment, has confirmed the worst.
Bitcoin Drop Confirms the Worst
The overnight announcement from Celsius that it is halting withdrawals was the catalyst that sent Bitcoin down to $25,000, taking it below the price following the Terra collapse:
This leaves Bitcoin facing a position many thought inconceivable a few short months ago – a return to the prior high:
However, we were highlighting these crucial areas back in January, suggesting that a fall to $20,000 would usher in a lengthy bear market. Indeed, this seems to be on the cards, presenting those who have stayed on the sidelines with a chance to gain some great entries.
Crypto Sentiment Rock Bottom
However, it’s not just technicals that identify a bear market. Crypto sentiment is rock bottom, with people only discussing cryptocurrency in negative terms, such as Bitcoin dropping in price or the Terra crash, which is exactly what we can expect at times like this. We only need to look at the transfer of money out of DeFi protocols as an example of the fear in the market – we’re now back at February 2021 levels:
The macro environment is toxic too, with the Federal Reserve likely to announce hefty interest rate hikes and quantitative tightening until it can bring inflation under control. Such activity acts like Darth Vader’s choke hold on asset markets, and they will only breathe again once this grip is loosened, whenever that might be.
Until that point, no one knows what will happen to crypto markets, how low they will go. Rather concerningly for alt coins, there is a heck of a lot of daylight between the prior high of the total market cap:
Dropping back to this level would take the value of the crypto space well below $1 trillion dollars again, which as we can see takes us back to the total valuation from the 2017 bull market. This is a far cry from when crypto was going to take over the world as it hit $3 trillion in November 2021.
Until the bottom comes, we can expect more DeFi protocols to struggle to honour withdrawals, exchanges and other projects to go under, and the larger organisations continue to reduce headcounts.
A crypto bear market isn’t fun, and for those who joined for the 2020/21 bull market, they’re about to get a rude awakening.