Problems
that emerged in November 2021 are still troubling digital assets. The price
movement of Bitcoin is similar to that of the Nasdaq 100 index and although
Bitcoin lost almost 40% of its value, the index has dropped by 20% over the
last five months. Both assets were trying to bounce back from their March lows
but failed.
In order to
estimate the direction that Bitcoin will now take we have to take a global look
at what happened at the end of 2021. The short of it is that the, appetite for
risk has decreased dramatically. There are now more factors present, besides the
Federal Reserve’s (Fed) monetary tightening fears that may support a decrease of
such an appetite. High inflation is pushing U.S. monetary policymakers to be
more aggressive when it comes to monetary tightening, as rather weak Q1 2022
corporate earnings reports have forced investors to seek shelter in the U.S.
Dollar-denominated assets. We should also keep in mind economic difficulties in
Europe that depend on gas supplies from Russia and COVID-19 outbreaks in China.
This is a perfect recipe for stagflation. Such expectations do not promote the
demand for high-risk assets.
Trade
volumes of Bitcoin futures have been declining from the first half of 2021 at
the peak of the bull’s market, and they have now fallen by 60%, from $70-80
billion to $30 billion a day. What is more alarming is the fact that perpetual
futures are getting most popular in the market with a share being worth 93% of the
overall futures trading volume. In the beginning of 2021 this share was at 75%
as Bitcoin was at $20,000. The rising leverage is flagging capital flight of large
institutions from this market.
Venture
capital is financing the most perspective projects in the industry despite
turbulence in the market. However, if some months ago play2earn gaming
protocols received most of the investors’ money, infrastructure projects are
now the priority. The most interesting venture rounds recently were provided by
Solana Ventures, FTX and some other $23 million to Cogni-digital banking
platform, and $70 million from Coinbase, Pantera and some others for 0x Labs,
infrastructure provider for decentralized exchanges. 0x Labs (ZRX) tokens
surged 50% on April 20, while investments were announced on April 26.
Investors
seem to be tired of the long-lasting correction, but it is no reason for the
global downside trend for Bitcoin, that is looking towards $35,000 per coin, to
be changed. Once reached, this level may pave the way to $30,000. The downward
trend that started last November must be considered as traders open their positions.
We have witnessed several upside spikes without any particular setup over the
last two weeks. Large market players use them to open short positions, or to
increase existing short positions. So, intraday spikes may be misleading, and
should not be considered as optimistic.