From a historical perspective, the loss in value realized across the cryptocurrency market over the past several months has been one for the record books and the total cryptocurrency market cap has declined from $3 trillion to $991 million.
June was especially painful for investors after the price of Bitcoin (BTC) fell nearly 40% to mark one of its worst calendar months on record according to a recent report from cryptocurrency research firm Delphi Digital.
BTC/USD monthly candles vs. MoM% change. Source: Delphi Digital
In light of the strong market correction, a number of BTC price and on-chain metrics have begun to reach levels similar to those seen during previous market bottoms, but this doesn’t mean traders should expect a turnaround anytime soon because history shows that periods of weakness can drag on for months on end.
Macro headwinds weigh on BTC price
One of the most significant factors weighing on cryptocurrencies and other risk assets has been the strength of the United States Dollar.
DXY index YoY% change vs. BTC/USD price YoY% change. Source: Delphi Digital
Combined with rising inflation and falling economic indicators, DXY strength is a signal that an economic slowdown is all but inevitable, with forecasts now predicting a recession in early to mid-2023.
Against this backdrop, BTC now finds itself attempting to form a local bottom around the 2017 cycle high near $20,000, “the last clear structural support on the high timeframe bitcoin chart.”
BTC/USD price-performance 1-week chart. Source: Delphi Digital
This current cycle marks the first time in Bitcoin’s history that its price has fallen below the all-time high set during a previous bull market cycle. Should BTC fail to hold support near $20,000, Delphi Digital pointed to an expected “support around ~$15K, and then ~$9K to $12K if that level failed to hold.”
While those estimates may seem bleak, it should be noted that BTC price fell roughly 85% from peak to trough during each of the previous two major bear markets.
If the same were to occur during the current bear market cycle, that would put BTC at $10,000, marking another 50% drawdown from the current levels and falling in line with the 2018 to 2019 price range.
For this reason, analysts at Delphi Digital believe that “there’s still more pain ahead for risk assets.”
Where is the bottom?
The percentage of Bitcoin supply held in profit and Bitcoin’s realized profit/loss ratio are nearing levels seen during previous bear markets, but each has “a bit more room to go” before they reach their lows for this cycle according to Delphi Digital.
BTC/USD price vs. realized P/L ratio. Source: Delphi Digital
According to the firm, “momentum indicators and valuation metrics can remain oversold or undervalued for an extended period of time,” which makes them “poor timing tools” that are not capable of predicting immediate reversals.
Contrarian investors might also want to keep an eye on the market sentiment as well as the Fear and Greed Index which has now reached historic lows.
BTC/USD price vs. Fear and Greed Index. Source: Delphi Digital
When it comes to a potential move to the upside, Delphi Digital indicated that “BTC has room above due to the previous liquidation cascade in the wake of 3AC,” and identified the next major resistance level as $28,000.
Delphi Digital said,
“BTC will likely continue to consolidate until we get some kind of macro catalyst.”
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