Bitcoin close to a bottom, but inflation unsettles predictions

If May was a black month for cryptocurrencies, June is not turning out to be any better. In just 15 days, Bitcoin, the digital asset par excellence, lost 45%, broke the all-important support level of $20,000, the legendary all-time high of 2017, and the crypto space has entered a systemic crisis that threatens to sink the decentralized finance sector (DeFi). Last week's sell-off lifted the correction from November's all-time high of $69,000 to over 70%, and despite experts warning that there is still downside room, all indications are that the market could be in the process of forming a floor. However, inflation is a novelty for these assets, which keeps experts cautious in their predictions.

Data from Coinglass also shows that $600 million was liquidated from the cryptocurrency market when Bitcoin hit lows since 2017 at around $17,600. Bitcoin experienced around $300 million in liquidations, while Ethereum endured $200 million. The rest of liquidations occured in the 'altcoins'.

Despite this downward price action, the digital currency par excellence closed the week strongly above $20,000 and some blockchain metrics suggest that a market bottom, at least of a temporary nature, could be near, noted Marcus Sotiriou, analyst at GlobalBlock. The price correction of the market's most traded digital currency is already 74%, however, some experts believe there is still some downside room left, as in previous 'crypto winters' the asset has even retreated 80% from its all-time highs.

"Its technical aspect is very complicated and the most normal thing is that we could end up seeing an extension of the falls to the $16,000 level," stated César Nuez, analyst at Bolsamanía. "If it fails to hold at this price level, it is very likely that we could end up dribbling down to the $12,000 level," he added.

"Current market conditions do not offer much room for optimism," eToro's Simon Peters pointed out. "Valuations are very depressed after buoyant behavior over the past 18 months. We are now back in the region of 2020 valuations, but prices are still moving above the levels we saw just 18 months ago."

"As for the current pullback, cryptoassets have been here before on a relative basis. Bitcoin saw a correction of around 84% from its highs in December 2017 to the low in December 2018," they remind us. Should such a large correction occur now, the price would end up near $10,000.

HOW MUCH IS LEFT FOR THE DECLINES TO BOTTOM OUT?

Turning to the analysis on the Glassnode blockchain, we can see how the weekend's cascade of liquidations resulted in the largest realized dollar loss in Bitcoin history. There were more than $7.325 billion in losses locked in by investors, and approximately 555,000 Bitcoins changed hands between $18,000 and $23,000. Investors with 1-year old Bitcoins capitulated, as Glassnode data shows upward momentum for the "1+ year BTC Last Active Revived Offering."

Finally, when Bitcoin hit the low of $17,600, only 49% of the supply was in profit. We can see in this chart from Glassnode that historical bear markets have bottomed and consolidated with between 40% and 50% of supply in profit.

Based on the historical data, everything points to the fact that "Bitcoin may have reached a temporary bottom or that a bottoming process has begun for this bear market," stated Sotiriou. "It's important to keep in mind when looking at this historical data that Bitcoin has not gone through a period of persistent inflation. We may be approaching a market bottom as more forced liquidations occur, but we cannot be confident of a sustained uptrend until inflation slows convincingly," the expert concluded.