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Has the crypto crash stopped or is it continuing?

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These days many people are wondering whether the crypto slump has actually stopped, or whether it is set to continue. 

To answer this question, one must distinguish between two collapses: the one that began in late November 2021, and the small one that occurred yesterday. 

Yesterday’s small crash in the crypto market

Yesterday’s very small crash, already partly recovered, was due to the spread of some bad news of which some eventually turned out to be irrelevant. 

Nevertheless, it remains quite interesting to analyze, especially because of what happened in the previous days. 

The problem actually started on 7 November last year when rumors began to spread about a possible insolvency of FTX

At that time the crypto market capitalized nearly $1.1 trillion, and the price of Bitcoin was about $21,000. That slump continued until 10 November, when Bitcoin’s price hit annual lows at about $15,500 and the crypto market capitalization had fallen to about $800 billion.

The first interesting thing is that from then until now there has never been a return to those lows. However, it was not until 6 January that a real rebound was triggered that brought the price of Bitcoin back above $21,000 and the crypto market capitalization above $1 trillion. 

The unfortunate note is that this rebound was very fast. After nearly two months of lateralization around $16,000 or $17,000, in just nine days Bitcoin’s price returned to $21,000. 

Five days have passed since then in which the price in fact has not risen, so there are those who believe that a correction may occur because of the seemingly too fast speed with which the rebound occurred. 

In such a scenario it was inevitable that negative news such as that of yesterday would generate a small slump, which nevertheless stopped just below $20,400. The capitalization of the crypto market, however, is back below $1 trillion. 

The reasons for the retracement

The main reason for this possible retracement, which has not actually happened yet, is that speculators who bought low in late November and early January are eager to sell to monetize the gains

In case they think that prices cannot rise any further at this time, they may rush to sell before their eventual collapse. In doing so though they could themselves cause a collapse. 

Indeed, some believe that yesterday’s drop was due to this very dynamic. If this is the case, one might also expect that the retracement has already occurred, and has turned out to be almost insignificant. 

However in the event that prices do not rise again soon, other speculators in the short term might decide to sell to monetize, and this could trigger a similar dynamic again. 

It is important to remember that buying – and obviously selling – volumes in recent months have been very low, so there may be very few who have bought at very low prices with the sole aim of reselling as soon as possible at prices even 25% higher. 

At this time, it is not possible to say how many these speculators are, how much they have invested, or whether yesterday’s small retracement means that they have already sold. 

Hence it is entirely possible that in case of additional bad news the retracement will resume, and in case it was due just to the monetization of the speculators who have been buying in the past weeks, it should stop the moment the selling prices for them should become unattractive. 

It is worth noting that perhaps something like this had already happened in mid-December, when the price of BTC briefly returned above $18,000, so perhaps this is the threshold to watch. 

If, on the other hand, yesterday’s drop should have prompted all these speculators to sell, then yesterday’s small retracement might be over, but this does not seem a particularly likely scenario. 

The bear market: the end of the crypto crash?

An entirely different matter is what concerns the long term, that is, the bear market that began in late 2021, and the eventual bottom touched on 10 November 2022. 

In fact, there are many who believe that the bear market is actually not over, and that the $15,500 touched by BTC in November is not the minimum peak of this cycle. 

There are both reasons in favor of this hypothesis and reasons against it. 

Most of those who believe that the bear market is not yet over assume that macro conditions at the global economic-financial level, and particularly those in the US, could deteriorate further. 

However, it is worth mentioning that the markets right now seem to be betting on a recovery, or at least an easing of the critical issues. On the other hand, inflation has already been falling for months, and speculation is mounting that the recession may not be there, or may be mild. 

Moreover, technical analysis of the charts is also suggesting that the difficult time may not yet be over. 

Nonetheless, consideration should also be given to the hypothesis that the bear market may actually be over, though the crypto winter may not.

The crypto winter

Many people confuse the two terms, but there is a fundamental difference: the bear market involves falling prices, whereas in reality it has been more than two months now since the lows have been reached. 

The crypto winter, on the other hand, also includes an eventual period of post-collapse lateralization during which prices do not fall further, but remain low. 

Right now the bear market may be over, while the crypto winter is definitely still going on. 

It is worth noting that in the traditional markets the lowest peak of 2022, and perhaps of this cycle, occurred in mid-October, which is one month earlier than that of the crypto markets. 

Therefore should the trend not reverse, due to some new big bad news, the bear market of 2022 would indeed seem to be over, even without a new bull run having begun. 

The problem is that the crypto winter is still going on, and if other catastrophes such as the FTX failure were to occur, a new bear market could begin. 

In other words, the bear market of 2022 is probably over, but for now there seems to be nothing to rule out another one in 2023 as well. For now the situation seems calm, but it is impossible to predict catastrophes like FTX well in advance. 

So a collapse is still entirely possible, although at this time in the short term it seems unlikely.





Read More: Has the crypto crash stopped or is it continuing?

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