The past few months have been difficult for crypto markets AND traditional securities. Both markets have flailed as inflation has rocketed higher and the Federal Reserve moves to battle rising prices by ending quantitative easing and raising interest rates. Crypto, once viewed as “digital gold” or a non-correlated asset to traditional securities is now failing on both fronts. So is a bottom close? The folks at Genesis in their monthly market report ask this very question.
To quote the report:
“The Bitcoin price dropped approximately 17% over the past month, a lesser drop than in May 2021, but nevertheless, its second-worst May performance to date. A key feature of the crypto markets in May was the sharp increase in Bitcoin’s market dominance as asset prices fell across the board and investors rotated into the sector’s “blue chip” asset. In the second half of the month, Bitcoin’s dominance —also known as BTC.D—broke through 46% to the upside for the first time since October 2021.
Given its relatively low volatility compared to other crypto assets, BTC usually underperforms in strong markets and outperforms in weak markets. October 2021 was an exception to this, as investor excitement about the listing of the first Bitcoin linked ETF in the US had pushed its price up to $52,700, giving the asset a strong outperformance. The previous 46% breakthrough to the upside, in July 2021, is more relevant: the crypto market was weak, overall market cap had dropped by over $1 billion since early May, and BTC had fallen by almost 50% in the same period. Yet July 2021 turned out to be the local low—BTC’s price went on to more than double over the next four months.”
While not declaring a bottom is at hand, Genisis states “other metrics are hinting that—based on historical precedent—a bottom could be near.”
The collapse of TerraUSD / LUNA, looming enforcement actions, vague regulation, and the looming migration of Ethereum from Proof of Work to Proof of Stake have created a combustive cocktail in the crypto markets – especially alongside a diving economy and an administration that appears clueless as to what they should do.
So is it time to buy Bitcoin? Genesis won’t say pull the trigger yet because:
“Unlike traditional asset classes, there is still little consensus on methodologies for estimating [the] intrinsic value of BTC and ETH. This wider dispersion of opinion is one of the reasons prices in crypto markets have historically fluctuated more widely than in equities.”