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.