It’s been eight months since I predicted a top in Bitcoin (BTC-USD) and advised investors to avoid it. The market has dropped more than 70% since our last article, crushing dreams and exposing the industry’s false analysts and idols. In this article, I’ll discuss my thoughts on Bitcoin in the coming months.
Bitcoin’s washout will not be reversed overnight.
During the first move above $60k in May 2021, we actually predicted another Bitcoin top. Bitcoin met all of the criteria for a high on both occasions, which included:
- Technical oversimplification and preparation for a correction
- Significant speculative interest and promotion.
- Irrational exuberance- irrational bullish predictions and a surge in get-rich-quick investors.
The initial downturn was typical of a correction from a large bull trend.
On speculation, Bitcoin broke through the $20k barrier and rocketed to new highs. The first retreat hit initial support, but it recovered quickly, with the bottom occurring in June/July.
Markets generally retest the high because there is a lag after the initial euphoria. Enough investors cashed out on the way up to support the following rise. The “Fear of Missing Out” has taken over new investors who missed the initial run. The second dip has coincided with a shift in the atmosphere and the regulatory outlook for BTC. We can expect sideways movement in the next months because it was a lengthier and deeper pullback.
You can also see that the BTC correction was simply a return to the prior year’s headline highs. Markets never change, but human psychology does. Be wary of those advising you to purchase the new drop as we approach the latest lows. Even the millionaires who attend Bitcoin conferences to revel in adoration and confirmation bias were unable to catch any of these tops in Bitcoin.
This week, there were some new all-time highs for BTC, but only in Google searches like “Bitcoin is Dead” and “Bitcoin Dead.”
The decentralized dream has come to light
Bitcoin is under attack from governments and a political push for green energy. Stablecoins have been turned upside down.
Interest rates are rising and are expected to rise further. The low-interest-rate environment and stock market bubble not only set the stage for a bull market in alternative and speculative assets; they also provided the funds.
Due to rising interest rates on government paper, there is less demand for the high-interest rates of decentralized finance (DEFI) projects. The market caps of DeFi projects have plunged by more than 80%, as has their Total Value Locked (TVL), analogous to a bank run, and that money is unlikely to return anytime soon following high-profile fallouts in Terra, Three Arrows Capital, and Block-Fi.
Institutional adoption was on the verge of becoming a reality in 2021, but the brakes have been applied once more.
The lack of confidence is a major issue right now, and investors will be hesitant to spend their money in cryptocurrency initiatives. They have observed that market capitalization and adoption are based on speculative flows.
The fractures in the decentralized ideal are the next major issue. Decentralization was supposed to be the main selling point of cryptocurrencies and Bitcoin, but that notion has now become a laughingstock.
Many new bitcoin believers are also former goldbug proponents who were anti-Federal Reserve and anti-Big Banks. They believed that their new technology and beliefs were superior to the current financial system, but those hopes have been dashed.
We’ve seen charges of money laundering, theft, and the seizure of blockchain accounts in recent months. Tell me how “The New Monetary System Inc.” differs from the current system. The answer is that the current system is regulated.
Reuters was the first to accuse the Binance exchange of $2.35 billion in money laundering. The company denied the charges, but this simply adds to the industry’s distrust. The failure of the LUNA project also resulted in a police probe into money laundering.
Apart from the unregulated atmosphere, I’ve noticed a lack of decentralization and invasion by centralized third parties, which we were promised did not exist in Bitcoin and the blockchain. When the Canadian authorities confiscated bitcoin accounts from key exchanges, it ripped a hole in that argument. We also saw the Solana blockchain, where investors in a third-party app voted to award emergency powers to confiscate a ‘whale’ account that posed a risk of instability. Excess leverage, which is particularly prevalent in the unregulated sector, was to blame. In a third episode, the Celsius project froze all platform withdrawals, becoming the latest DeFi threat. The accounts are still locked down with minimal assistance from the project, and a TechStory piece summed the recent investment ideology:
“Almost every YouTube channel recommended Celsius, so I assumed it was safe.”
Connect the dots and take appropriate action
Investors should overlook the new Bitcoin fall and go elsewhere. The project will rise and provide hope, but it is likely to fall sideways, if not lower, in the coming months.
Warren Buffett has stated that if he were handed a 1% share in all of America’s agriculture, he would immediately write a check for $25 billion. He would do the same for a 1% stake in all of America’s apartments, but not Bitcoin. He specifically stated that he would not accept the entire amount of BTC for $25.
“The apartments are going to produce rent and the farms are going to produce food,” he added. “If I’ve got all the bitcoin, I’m back wherever [Satoshi] was,” Buffett continued.
We tried to warn investors about Bitcoin over the last year since it was simple to see the connection. The government is content to allow investors to become accustomed to digital money, but each decline in BTC brings us closer to digital money produced by the Federal Reserve or the Treasury.
The recent market crash has demonstrated that the government does not even have to take Bitcoin. The market is exposing itself on its own, leaving investors with a lack of faith, because money is backed by faith.
Do Kwon, the founder of Terra and the focus of the LUNA collapse issue, said of his Terra stablecoin:
“I still believe that decentralized economies deserve decentralized money – but it is clear that $UST in its current form will not be that money.”
As the dust settled on Mr Kwon’s idea, he had the vision to recognize that the project had lost the faith of investors and a chance at mass adoption. We can now say the same thing about many other cryptocurrency initiatives, and I believe Bitcoin is no exception.
The highs from the 2017 market rise signaled the end of speculation, and it took BTC three years to break through the 2017 highs due to a lack of institutional appetite. With all of the headwinds and weakened investor trust, I wouldn’t be surprised to see the coin trade sideways for another year or so. That forecast is likely to be accurate for the sustained rise in interest rates as well.
Connect the dots and take appropriate action
Over the last year, I’ve stated that the regulatory climate was closing in on Bitcoin. It has added some hurdles to Bitcoin, along with resistance from Green lawmakers. The greater impact came from inflation, which resulted in higher interest rates and the withdrawal of speculative flows. We also warned at the time that central banks were wary of stablecoins, and the subsequent troubles at some of the DeFi initiatives have done the regulators’ work for them. The first BTC bounce was still riding on speculative flows. The second has been more drawn out and will be more difficult to recover from. The acts of DeFi lenders and investors have exposed the concept of decentralized finance, and investors are losing faith, which is a major fundamental for BTC. Many large firms were beginning to examine BTC on their balance sheets in early-2021, but the recent drop has put that approach on hold for the time being.