Bitcoin’s brief drop below the symbolic price threshold of $ 30,000 on Tuesday reignited talk of a crypto winter. It doesn’t help that cryptocurrencies like Dogecoin, XRP, and others have fallen sharply in the past 24 hours.
However, experts tell CNBC that Bitcoin’s fundamentals are good and that market conditions in 2021 will be very different from the last major crypto crash in 2018.
“We are far from a bear market, only traders freak out about technical data on the exchanges such as volume and price movements,” said the popular on-chain analyst and statistician Willy Woo.
What is happening to Bitcoin?
Bitcoin’s rise over the past 12 months has had a lot to do with the billionaires and companies buying bitcoin in bulk. The increased interest from mainstream financial players has not only reformed the image of Bitcoin, it has also fueled a supply shortage that has helped drive the price of the token soaring.
But as the Bitcoin price peaked above $ 63,000 in April, the past few months have been tough for the world’s largest cryptocurrency.
China’s nationwide crackdown on the country’s bitcoin miners certainly won’t help.
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“The recent news of the Chinese mining shutdown every few years is very reminiscent of China. They banned banks from using Bitcoin, but that’s actually different. I’ve never seen an exodus like this, ”said Darin Feinstein, founder of Blockcap, one of the largest Bitcoin mining operators in North America.
More than half of the world’s bitcoin miners are in China, and Beijing has made it clear that it wants them out. In May, the government called for a crackdown on Bitcoin mining and trading, triggering what is known as the “great mine migration”.
“Much of this downward momentum in Bitcoin price has been attributed to China’s recent mining moves that have resulted in a lower global hashrate,” said Jason Deane, an analyst at Quantum Economics who specializes in research and analysis of financial markets and cryptocurrencies .
“While long-term bitcoiners see this as an extremely positive move for the network, short-term traders are scared of uncertainty.”
Currently the Fear and Greed Index shows a value of 10, which indicates “extreme fear”.
“Markets are often driven by momentum that can at times overwhelm fundamentals, and current sentiment seems to reflect that this is what we are seeing here,” said Deane.
2021 vs. 2018
But Deane and others think it is unlikely that it will be the beginning of what is known as a crypto winter. Instead, they predict that we are heading for a period of overreaction that will correct itself in due course.
“We may never see a crypto winter again,” said Mati Greenspan, portfolio manager and founder of Quantum Economics. “There is a lot more utility, acceptance and diversification in the industry than we had in 2014 or 2018.”
Bitcoin bulls insist that Bitcoin’s underlying fundamentals are much stronger in 2021 than it was during the last bear market in 2018.
“It is the more than a decade of flawless security of the Bitcoin blockchain, the breadth of uses of Bitcoin and the degree of acceptance that define the intrinsic value of Bitcoin,” said Alyse Killeen, founder and managing partner of the Bitcoin-focused venture- Stillmark company.
This last point is especially important – the adoption of Bitcoin is on the rise, creating a wider group of users who believe in the value of the currency which makes it stronger.
“All network fundamentals are bullish, most notably we’re at an all-time high in new customer growth,” said Woo.
Bitcoin also recently completed its first major upgrade in four years, which promises additional functionality, privacy, and efficiency.
In the short term, Bitcoin believers believe that crypto prices will stabilize at a price level that is still higher than in previous plateaus.
“It definitely fits the pattern of crypto assets rising well above previous all-time highs and then settling into a new normal for a few years as builders continue to innovate on the technology front,” said Auston Bunsen, Co-Founder and CTO of QuikNode , which provides developers and companies with a blockchain infrastructure.