Bitcoin has fallen sharply over the past month, and some altcoins have fallen even more, and many people have become pessimistic. However, despite the current downturn, historical trends and fundamental movements suggest that we are far from the end of this cycle.
Drawdown = Normal
For veterans of the cryptocurrency market, volatility is normal.
This is the fourth time Bitcoin has seen a 20% pullback in the past 12 months, and historically, the current pullback is not uncommon. Surviving multiple declines, from mild 5-10% drops to severe 40-70%, and not getting shaken out, is typical of bull markets. They are expected.
Historic timing
At this point, the importance of the Bitcoin halving is not its impact on supply, but its impact on the next 12-18 months. The market bottom usually occurs about 1.3 years before the halving, and the peak occurs about 1.3 years later, about 480 days.
These declines can be viewed as a necessary step on the road to new all-time highs, consistent with the broader cyclical rhythm of Bitcoin's continued rise.
Institutional long game
Now, consider what kind of conviction it would take for an investor to lock up a significant amount of capital in a token for multiple years.
Recently, a16z received about $90 million in Optimism OP tokens with a vesting period of two years, showing a firm belief in the potential of the super chain. Similarly, institutional funds purchased $100 million in locked SOL during the FTX asset sale, with the terms locking these tokens for a four-year vesting period. In early March of this year, the first round of sales of $1.7 billion worth of SOL, and the second round of sales at only 15% of the current market price (about $130) ($95-110), further highlighting the importance of the four-year vesting period.
These long-term purchases indicate a deep-seated belief in where the market will continue to go in the coming years.
Fear and greed signals
As a young market that relies first and foremost on narrative, emotion plays a key role in cryptocurrency.
By studying the Fear and Greed Index, it is possible to see where the market is headed. On the index, 0 represents maximum fear, while 100 represents maximum greed. When the index reached 90 points last month, the decline we are experiencing today began. The index currently sits around 50, a neutral area that has historically indicated that a bottom is near. On January 24, the index was at 48. Over the next month and a half, Bitcoin rose from $39,000 to $73,000. A similar situation occurred last October. The index reached 44, and by the first week of December, BTC climbed from $26,000 to $40,000.
Be fearful when others are greedy
Hope ahead
Despite the current low sentiment, there are compelling reasons to be optimistic about the market. Bitcoin’s resilience in the face of continued declines, its historical pace of halving, institutional longs, and market sentiment indicators all clearly show the reasons to remain bullish.
As these cycles come to an end, it may be wise to expect more corrections ahead, but to view them as opportunities rather than drawbacks.
According to on-chain data, the bull market highs were bought by short-term holders.
Although long-term holders are usually the core value investors of Bitcoin, the peak of the bull market is inevitably accompanied by a large number of retail investors, and the high point is bought by short-term holders. Paying attention to the changes in the proportion of long-term holdings can help us determine whether we are currently entering the late peak of the bull market, which is also a basic and important on-chain indicator.
Crowds of people + money = long-term healthy bull market
Although the essential differences between "Bitcoin" and "other cryptocurrencies that are not Bitcoin" will become increasingly greater, for example, Bitcoin will become more and more like a commodity, a commodity asset with both risk and safe-haven factors, while other cryptocurrencies such as Ethereum, other public chain coins, and protocol coins will become more and more like certain technology stocks.
But at this stage, for most people, they are all "cryptocurrencies", and there is still a high correlation, and the market trends are often linked. So no matter what coin you actually buy, you still have to pay attention to Bitcoin. As the leader of cryptocurrencies, the rise and fall of the entire market is still deeply affected by Bitcoin.
External funds flow into Bitcoin and enter the cryptocurrency circle
The funds entering the cryptocurrency circle are looking for returns and opportunities, and are flowing into other sectors such as DeFi, restaking, layer 2, etc., driving the sector to rise in turn.
Combined with some out-of-circle applications, it may not necessarily bring in funds directly, but it will attract a large number of new users into the cryptocurrency circle, such as gamefi, DePIN, AI... Just like the previous wave of NFTs and the previous wave of ICOs, they all attracted a large number of new users.
If there is only a flow of money but no crowds, it is a bubble that will burst quickly; if there is only a flow of people but no flow of money, the game in the market will become more and more serious, and people will fight each other to compete for the only resources. The bull market will last longer and farther only if there is a flow of people + money. For us investors in the market, the focus is whether this wave of bull market can continue to meet these conditions, and use this to arrange our investment cycle and strategy.
Later, I will bring you analysis of leading projects in other tracks. If you are interested, you can click to follow. I will also organize some cutting-edge consulting and project reviews from time to time. Welcome all like-minded people in the cryptocurrency circle to explore together.