The price of the major cryptocurrency remains stagnant within a narrow band between $19,000 and $20,000 per coin. Even though the open interest in Bitcoin futures is at an all-time high, and Bitcoin itself is trending toward the range’s bottom, this shouldn’t be seen as evidence that the market is confused.
This could signal the onset of extreme volatility, which could cause a rapid swing in price in either direction.
Many proposals center around this idea, but the essential query is why bitcoin values should surge as many believe they should.
A downside scenario could be seen as more likely than an upside one, even if the technical picture favors a recovery. This is because there are more negative drivers on the fundamental side.
Liquidity drying up in global financial markets is the key risk factor. Consumer demand is being dampened by rising food and energy prices, while the banking industry appears to be the sole sector to profit from the tightening monetary policy.
However, even financial institutions like Credit Suisse are feeling the pinch, increasing the likelihood of investing heavily in relatively risk-free assets like U.S. Treasuries.
Every day increases the likelihood of another great slump, like the one in 2008, fueling mounting recession worries.
Risks of a recession beginning within the next six months were predicted at 63% at the start of October, up from 49% at the start of August.
Because of its relative infancy, the cryptocurrency market lacks the maturity necessary to support stable norms.
However, capital inflows and outflows may serve as directional indicators for the market, just as they do for other areas of the financial sector.
Not only that but there was no crypto market during the last financial crisis in 2008–2009. Large disparities may also be seen, with most crypto fans advocating for the inclusion of Bitcoin in investor portfolios at present levels or, at the very least, maintaining long positions. At the current price, only 10% of market participants think Bitcoin should be sold. When conditions are described, a bearish market exists where prices can be effectively regulated.
On the flip side, the number of potential purchasers is decreasing. Investors from large financial institutions considering entering the digital asset market have already done so. Macroeconomic risk valuations and stringent risk management are just two examples of how they keep their business safe. In the event of a market crisis, these investors will likely flee to haven assets like U.S. debt, and this trend has been accelerating over the past several months.
Stocks and cryptocurrencies, along with other risky assets, may be dumped by the end of the year if economic contractions severely impact corporate revenues.
All three of the world’s most influential central banks—the Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of England—have made it abundantly plain that they intend to take aggressive policy stances by steadily increasing interest rates. Many Federal Reserve members have recently spoken about raising interest rates to 4.75 percent by 2022 to rein in inflation. Therefore, we expect two more jumbo rate increases in the United States.
Considering the uncertainty and low liquidity levels, Bitcoin prices are more likely to fall to $15,000 per coin before recovering to $18,000 and then falling again to $10,000 in the medium future.
Professor Metadoro, Head of the Analytical Department