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Has Bitcoin finally found a bottom?

  • If Bitcoin has found a bottom, it appears that bottom is around the US$20,000 level, which for long-term Bitcoin investors, the cryptocurrency seems well clear of (for now).
  • Some analysts are suggesting that Bitcoin may have found a bottom, but risk appetite will need to return before cryptocurrencies can see any durable leg up.

As quickly as the legion of Bitcoin maximalists found wind in their sails when the benchmark cryptocurrency rebounded over US$23,000 last week, just as quickly, the winds died down and Bitcoin sank to US$21,825 (at the time of writing).

If Bitcoin has found a bottom, it appears that bottom is around the US$20,000 level, which for long-term Bitcoin investors, the cryptocurrency seems well clear of (for now).

But a buzz is building in crypto-investor circles and on Crypto Twitter (like regular Twitter but everyone only talks crypto), about Bitcoin’s stealth rally in July – it was so stealthy that no one noticed it.

Some analysts are suggesting that Bitcoin may have found a bottom, but risk appetite will need to return before cryptocurrencies can see any durable leg up.

Bottom or dead-cat bounce however is less clear, because trying to read charts on Bitcoin is akin to reading tea leaves – they reveal whatever future an investor already believes.

While cryptocurrencies have moved in lockstep with stocks, in particular the Nasdaq 100 for most of the year, that correlation slipped this month, dropping to as low as 0.50 on a rolling 60-day correlation (a correlation of 1 means that both assets move identically).

Although both Bitcoin and Ether have recovered somewhat from their low in June, tightening monetary conditions, and the soaring cost of living mean that a lot more will be needed to sustain a rally in the risk asset.

The U.S. Federal Reserve is set to raise interest rates this week, with bets of anywhere between a 75-basis-point hike to a full 1% raise of borrowing costs, dampening sentiment and appetite for more investment into risk assets, including cryptocurrencies.

A soaring dollar also hurts Bitcoin’s allure, the same way that other commodities, especially gold, slip whenever the greenback rises and this has played out in countries which have had to contend with soaring inflation, for whom a bet on cryptocurrencies is the “least bad” available alternative.

Many investors remain seated on the sideline, which is why Bitcoin continues to trade sideways.

Although tons of excess leverage have already been flushed out of the cryptocurrency system, with even the Grayscale Bitcoin Trust product trading at a deep discount to the underlying token, investors still remain cautious.

Blockchain analysis suggests that even if a bottom has not been reached, it is certainly being formed, with the onchain purchase price of Bitcoin below its current achievable price.

Many retail investors remain spooked, having been burned by a spate of failures in cryptocurrency lenders and exchanges and this will likely keep them away for now – retail investors like to buy when markets are up, and prices are high.

The only other source of buying energy is institutional investors, who are so far sitting on the sidelines.

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