Crypto Market Bottom: Experts Weigh In on Potential Rebound Timeline

Key Takeaways

• The price of Bitcoin has fallen below $40,000 for the first time since early December. 
• Many experts expect things to get worse before they get better.
• Selling pressure from short-term holders and macro headwinds could negatively impact crypto markets.

In the last week, the global crypto market has been gripped by a bearish mood that has pushed the price of Bitcoin below $40,000 for the first time since early December.  The pullback appears to have been catalyzed by the Securities and Exchange Commission’s approval of spot Bitcoin ETFs. After months of anticipation, when the new funds finally launched it instigated a major selloff as traders sought to take their profits from a rally that had lasted since early October. 

Without ETF hype buoying the Bitcoin market, a post-approval correction has already shaved more than 10% off the cryptocurrency’s price, but many analysts expect to see further losses before it rebounds.

More Losses on the Horizon

Having fallen below $40,000 on Tuesday, January 23, BTC is now on track to test the next support level at $38,000. If it breaks through that floor, CCN analyst Nikola Lazik has observed  that its ability to defend $36,00 will be crucial. If it can’t, he noted that a prolonged correction could see prices fall as low as $26,800.

But what’s behind the current downtrend?

In comments shared with CCN, Jag Kooner, Head of Derivatives at Bitfinex, observed that a decrease in average profits for short-term holders could is often a precursor to further selloffs. 

“Since the BTC price has fallen and stayed below the $43,000 level, over half of the profits accumulated by short-term holders have been wiped out,” Kooner observed. In fact, he said that many people who acquired Bitcoin in the past month are now exiting the market at a loss.

As traders move to lock in remaining profits or minimize their losses, such behavior could potentially reinforce the current downtrend. 

Analysts Keep an Eye on Macro Conditions

In a recent blog post, BitMEX founder Arthur Hayes said he anticipates macroeconomic headwinds dragging down crypto markets between now and March.

According to Hayes’ thesis, the price of Bitcoin will hit a low point after March 12, when the  Bank Term Funding Program (BTFT) – a US Treasury scheme introduced last year to support struggling banks – is scheduled to wind down.

Forecasting that the end of the program will coincide with the Reverse Repo Program (RRP) balance (i.e. the amount of cash US banks park with the Federal Reserve overnight) shrinking to nearly zero, he argues that the combination of these 2 factors threatens to “decimate” financial markets, instigating a decline of up to 30% in the price of Bitcoin. 

After that, the next key date Hayes identified is the Fed’s rate-setting meeting on March 20, when the expects the central banks to cut interest rates in an attempt to ease the pressure on indebted banks. Presuming events play out as he anticipates, he predicted “Bitcoin initially will decline sharply with the broader financial markets but will rebound before the Fed meeting.”

Echoing Hayes’ Sentiment, Nansen’s Principal Research Analyst, Aurelie Barthere  also expressed concern that worsening macroeconomic conditions could negatively impact crypto markets.

Arguing that the Bitcoin market has priced in a favorable macro environment, she said any upsets for the US economy “would be a challenge for crypto.”

However, like Hayes, she pointed to anticipated Fed rate cuts as a potential source of relief, noting that the decision to hold interest rates stable toward the end of 2023 helped catalyze rising crypto prices.