Is the Worst Over for the Crypto Market?

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  • The crypto market has remained resilient in the wake of the FTX collapse
  • The threat of other companies going under hasn’t had a negative effect on the market
  • Could the FTX capitulation be a sign that the worst is over?

The FTX story has been a runaway train, lurching from one station to the next and torching them down as it passes. However, following the initial collapse in the crypto market last week when FTX revealed it was insolvent, Bitcoin’s price has stabilised and has not been affected by the fallout, even though large organisations like Genesis are feeling the pinch. With Bitcoin’s price having now dropped 77% since the peak this time last year and people starting to buy again, has the worst passed?

Crypto Market Sitting at Major Support

It’s no secret that the crypto market has been in freefall since last November. At its peak back then, the crypto market was valued at $3 trillion, a figure which today stands at just $790 billion. There have been some sharp drops along the way, in particular the Celsius crisis and most recently the FTX debacle, the potential long term impact of which has led many to believe that the crypto market is set for further downside in the coming months.

However, the charts, and history, suggest otherwise. Let’s start with the total market cap:

market cap

As we can see, the year-long collapse has led the value of the crypto market to come to rest at the prior high, a point that has acted as support (at least for now). This also coincides with a 77% drop in the value of the market, well in line with the typical 80% drop that crypto bear markets have historically endured.

The next level of support underneath this is around $550 billion, representing an 81% correction, which is still of course in line with such drops.

Things get more interesting when we look at the Bitcoin chart:

bitcoin

With the 2017 top taken out by the FTX crash last week, the next port of call is the support at $16,000, which is exactly where it stopped. Bear in mind the FTX crash was a bona fide black swan event, and yet Bitcoin’s price didn’t go below $15,800 on the back of it. This, again, represents a 77% drop from the 2021 highs – very much in line with prior bear markets.

What Can Bitcoin Further?

Bitcoin has support below its current price at around $14,000, an 80% correction almost to the dollar, but the question has to be – what will take us there? The collapse of FTX was a major event, one of the biggest the crypto world has ever seen, and its impact will be long lasting. However, it has now collapsed, the band aid has been ripped off, and Bitcoin’s price is sitting at $16,000, respecting important support.

There have been multiple reports of other companies linked to FTX being affected, including big ones like Genesis and Gemini…and yet Bitcoin’s price actually rose when this news came out. Apart from a Tether or Binance collapse, is there anything that could feasibly happen in the short term that would drive price down? And what signs are there that either are in imminent trouble?

To add to this optimism is the Bitcoin buy volume. Exchanges have seen more Bitcoin buy volume in the past two months than they have for around a year and a half – to take one example, Bitstamp hasn’t seen this much Bitcoin bought per week since July 2021, and it’s only Friday. This tells you one thing – people have stopped selling and have started buying. And these people aren’t novices, they are experienced players who have waited for this moment for almost a year, while those still holding have been through much worse with Bitcoin and are in it for the long term. They aren’t selling here, so why should you?

Take a Sentiment Check

It’s also worth remembering how sentiment works. In situations like these, people are riddled with fear and don’t want to touch crypto. However, the time to be fearful was before the FTX crash, or even better when Bitcoin looked like it was reversing at $69,000. This was when all the bad news was yet to come (albeit unbeknownst at that time), which it now has, alongside the negative price action.

Naturally, the plethora of bad news has led to fear of worse to come, but we can look at the scale of what has now transpired and compare it to what crypto is actually doing as the fallout unfolds – it’s holding steady. It may well be that the FTX crash was the capitulation event that, history tells us, marks the end of the worst part of the crypto winter.

There is still a winter ahead, and a potentially long one at that, but unless something orders of magnitude higher than the FTX scandal occurs from here, something that would get those decade-long bitcoin holders to say ‘the party’s over folks’ and jack it in, there’s a good chance that the worst could be over.

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