Skip to main content

Have Cryptocurrency Prices Bottomed Out?

Cryptocurrency prices have been rising recently, following heavy losses, but what happens next is open to conjecture.
  • Author:
  • Publish date:

Is it safe?

Movie fans may hear those words and have a flashback to Laurence Olivier posing the same question as he wielded a dentist's drill in "Marathon Man."

Cryptocurrency investors have been going through their own grueling marathon as prices got drilled to bits and roughly $40 billion was wiped out in May.

So Far, So Good?

Crypto pricing has correlated with the stock market, which has been hit hard by supply chain challenges, recession fears and spiraling inflation.

In addition, there have been some very serious problems with stablecoins, which are digital currencies whose value is pegged to a stable reserve asset, like the U.S. dollar, the euro or gold.

The stablecoin UST or TerraUSD and its token sister Luna, both cryptocurrencies of the Terra ecosystem, collapsed last month. UST lost its dollar peg when millions of investors all wanted to redeem their tokens at the same time.  

Luna 2.0, a new Terra Luna token, launched on May 27, and was up 35.2% to $0.008571.

Bitcoin was up marginally to $31,653,81 at last check on June 1, according to CoinGecko, and up 6.7% for the last 7 days. The world's most popular cryptocurrency is still down 54.2% from its Nov. 10 high of $69,044.77.

Ether, the primary token on the Ethereum blockchain, was up slightly to $1,948.84. 

'One Last Sell-Off'

After all that misery, is it safe to say we've bottomed out?

"Many crypto traders are awaiting one last selloff before piling back in aggressively, which means we may have seen a bottom formed," Edward Moya, senior market analyst for the Americas with Oanda. "Too much money is on the sideline waiting to get back into crypto, which might mean crypto prices might move higher if the peak in Treasury yields holds up." 

Moya said the key level for bitcoin is the $29,000 zone, "which if it breaks technical selling could bring prices down towards the 200-day SMA (Simple Moving Average), which lies just above the $20,000 level." 

Nicholas Cawley, strategist at DailyFX, said that the mini revival in Bitcoin and Ethereum this week "was sparked by last Friday’s marginally better than expected US inflation data which prompted talk that the Fed may hike interest rates less aggressively that originally thought." 

"The U.S. stock markets jumped from an oversold backdrop, dragging cryptos higher," he said. "Over the weekend Bitcoin broke above a cluster of recent highs around $30.7k and this week’s open above that level has underpinned the move, for now at least."

Bitcoin and Ethereum perpetual contracts both show a marginally positive funding rate, highlighting that buyers are more prominent, Cawley added, "while Bitcoin funds saw positive inflows last week according to Coinshares data." 

"While the Bitcoin background is marginally more positive it should be remembered that this is from a depressed price level," Cawley said. "The technical outlook is neutral at best and BTC really needs to trade back above $40k before any kind of bullish outlook can be confirmed."

'Mercy of the Fed Policy'

Frank Corva, senior analyst for crypto and blockchain at Finder, said "it’s difficult to tell for sure if crypto markets have hit the bottom."

"Bottoming out is a process, and we only know if a local bottom was hit weeks to months after the fact," he said. "Also, even if crypto markets are somewhere near the bottom, it doesn’t mean that they will skyrocket back to new highs any time soon."

Corva noted that crypto markets are still recovering from the Terra ecosystem collapse. Plus, like all other markets, they are still largely at the mercy of the Fed policy.

"The next few proposed 50 basis point interest rate hikes are likely priced into all markets, but we are now waiting to see whether the Fed actually starts to roll assets off of its balance sheet," he said. "If the Fed does start to roll anywhere from $47.5 to $90 billion off of its balance sheet per month, as it has stated it will, then we will likely see both crypto and traditional markets dip lower."

That being said, he added "much of the hope for a crypto market recovery has been lost and many of the crypto tourists and speculators have gone home."

"The mainstream media has been publishing its fair share of “we-told-you-crypto-is-a-scam” type articles and YouTube views for most crypto influencers are down 80-90%," Corva said. "These indicators are often a sign that crypto markets are somewhere near the bottom."

'Emotions and a Crystal Ball'

Travis Bott, CEO of Meta Labs Agency, said that "if you are asking if we have hit the bottom of the market to try and make your decision to enter the market you have already lost."

"You are using emotions and a crystal ball to enter the market," Bott said. "If you use proper principles for deploying your capital then you will remove the emotion and prediction elements of entering the markets which are the primary reasons most lose."

Bott recommended allocating the appropriate amount of capital and refrain from risking more than that amount out of emotion.

"At a strong point like this deploy 50% of your units," he said. "One unit is total divided by 20. This leaves you 10 units to deploy. If price is 30k and worst case scenario by most is 20k."

So between $20k and $35k, Bott said, "I am going to deploy the other 10 units to give me the best scenario for an average buy price."

"Determine ahead of time the price actions going down and up and stick to those for deploying the remaining 10 units and follow the plan," he said. "Remove emotion and hype, get educated and treat the market with sound principles and you will have the best opportunity to capitalize on crypto."