Bitcoin prices on crypto exchanges have dropped by 66% since their November 2021 all time high of $64,400 for a bitcoin. Trading all the way down to sub-$19,000 prices by late June 2022, bitcoin has found support at around the $20,000 level. One week into the month of July, the cryptocurrency’s price has notched up to the $21,600 handle.
But the king cryptocurrency’s grip on $20,000 isn’t assured. Heedless of the record heat this summer, 2022’s crypto winter is a frosty one. There are many potential threats to bitcoin’s price continuing into the second half of this year.
In this latest update from the Investing Circle, we’ll go over Bitcoin’s threats and weaknesses. And explain why the crypto’s strengths and opportunities will fortify its weaknesses, and help it weather any threats to survive to the next cyclical upswing. Please leave a comment if you found any information in this video useful, or it helped you generate any new investment ideas.
With the crash and burn of Luna Terra and Celsius, bare survival of this crypto is not an assured outcome for all cryptos. To stay ahead with the latest events and trends in the crypto space, as well as learn news and analysis for stocks and other investments, be sure to subscribe and hit the notification bell.
Bitcoin has made it through more than one massive price capitulation to overshoot the previous record high and sustain that level. But this crypto winter has some new sources of resistance to growth in bitcoin’s price.
A tightening correlation with tech stock prices extending for months puts the digital asset in the face of the same headwinds facing stocks. As equities tumbled in May, Bitcoin prices fell with them. This pushed Bitcoin’s correlation with stocks into record territory.
Earlier in the year, crypto analytics company Arcane Research reported a 0.49 90-day correlation between Bitcoin and the U.S. benchmark S&P 500 Index in March. By May it had notched up to an 18-month high of 0.53. On this zero to one correlation scale, this is a high degree of correlation.
Historically high consumer price inflation, central bank rate hikes tightening the money supply, recession indicators, and no end in sight to Russia’s war in Ukraine have spurned a sea change of risk off trades, shedding trillions in market capitalization from both stocks and cryptocurrencies this year over last December’s prices.
The inflows of institutional capital and integrations that blew up Bitcoin’s price since 2020 have changed it from a “digital gold,” contrarian hedge, to a high tech risk-growth asset. So now the latest Bitcoin price depends on those sources of support. While losing those tailwinds this year, Bitcoin also faced a steep market correction of the cryptocurrency industry’s own making.
The entrepreneurial, DIY approach to finance has had many costly lessons. The industry swelled rapidly with many new well-capitalized entrants, but the attrition rate on this cyclical downturn has been devastating in many quarters. It shook a number of Bitcoin miners, financiers, and other companies out of the business. This creates more fear, uncertainty, and doubt, raises the risk of investing in bitcoin, and creates headwinds for bitcoin’s price.
But fortunately the correlation between Bitcoin and stocks helps the crypto when stock prices rally like they have the first week in July. That tightening correlation trend strengthening into the end of a second year is bullish for Bitcoin in the long term.
It means that if nothing else, it will survive this crypto winter to the next market boom cycle. Otherwise, either stocks won’t survive this crypto winter which is most unlikely, or Bitcoin would have to sharply reverse the correlation trend and break its correlation to stocks at some point.
Meanwhile, Bitcoin provides a real service to the market– secure, trustworthy, reliable, peer-to-peer banking global payments on an open source Internet platform.
The price has plummeted since its November highs, but there are other ways to measure how well Bitcoin is doing, and evaluate it as an investment or financial instrument.
When evaluating share prices for any other tech platform, trends in average monthly user statistics and what’s causing them are important to analysts.
Increasing app use leads to increasing profit from direct advertising, subscriptions, and marketing revenue. This in turn makes the company’s stock more valuable at its current price.
For Bitcoin, increasing app usage leads to a decrease in the available supply of the limited quantity of bitcoin that will ever be created. Meanwhile it increases Bitcoin’s network effects.
More participants securing bitcoin, saving it, spending it, and/or accepting it for payment scales up its utility. This in turn makes the current amount of bitcoin someone holds more valuable and that’s reflected in an increase in bitcoin’s price and its purchasing power to buy dollars.
The number of reachable Bitcoin nodes running the cryptocurrency’s core implementation worldwide has been above 15,500 since May. That’s half again as many as the number of bitcoin nodes there were a year ago. There were under 10,000 nodes last May.
And that’s twice the number of nodes the network had in late 2016. At the rate the network is growing, it will soon have doubled the number of nodes from 10K to 20K, in just three years, after taking five years to double them from 5K to 10K.
These nodes have drastically increased the amount of security hashes they run on server racks to secure bitcoin as its value has increased. Five years ago in May 2017, the network hit 4 million terahashes per second (TH/s) for the first time. Today, Bitcoin runs at above 200 million TH/s to secure the blockchain’s account of transactions and addresses.
Speaking of addresses, Bitcoin has had 15 million unique active addresses or more a month since April 2020. A unique active address is one that made a transaction on the network as either a sender or receiver. While monthly active addresses are down over 2021 volumes this down cycle, the overall multi-year trend is a decade of sustained growth in network usage.
During that time Bitcoin’s price has been through more than one bull run followed by a bear market. But with each cycle, Bitcoin’s price floor keeps moving up with increasing adoption, usage, integrations, and capitalization by investors. With its wagon now hitched to stocks, it will almost certainly make it through this crypto winter to the next upswing.
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