There is no rush to proclaim cryptowinter if Bitcoin holds $30,000

The truth is that a 50% correction like the current one is not at all surprising for a market that is more than accustomed to rises and falls of this magnitude. The value of Bitcoin has lost more than $600 billion since its November peak and more than $1 trillion has been drained from cryptocurrencies in total, as major tokens such as Ether, Cardano and Solana follow the number one digital currency in its downward spiral. The Ethereum network unit has more than halved its capitalization since peaking in November, while Solana is seeing an even steeper decline, down 65%, and Cardano, down 68%.

We could say that we are in a short-term bear market within a prolonged bull market lasting more than a year. "We've seen it before, sharp moves work both ways, and although 'cryptos' have matured over the years, they remain a highly speculative and high-risk asset class," pointed out Craig Erlam, an analyst at Oanda.

Still, it's a long way from a crypto winter. The last time these market conditions were experienced between 2018 and 2019, the total correction was 80%. If the current sell-off were to emulate then, Bitcoin would lose $20,000 to prices near $15,000, an extreme that seems impossible given the institutional money invested in the digital asset. On the other hand, however, experts recognize that it may enter a cooling period where the historical highs and the coveted $100,000, which the bulls dreamed of in 2021, remain in the memory.

Numerous reasons have come together to trigger the recent wave of selling. "Looking back over the past few months, it is clear that the crypto market is positively correlated with equities," explained Naeem Aslam, head of analytics at AvaTrade. Falling sentiment due to various risks, such as the tightening of monetary policy by central banks, especially the US Federal Reserve (Fed), and global geopolitical tensions, "has persuaded investors to withdraw capital from the volatile digital sector," he stated.

There are also other issues such as the tax season in the US, according to Bloomberg, or other problems specific to the cryptocurrency industry, such as the flood of regulations that are being prepared in countries like the US, Russia or Singapore. It was widely known that 2022 was going to be the big year for regulations and legislation in this market, an element that is actually very welcome by investors, but that, from the outset, causes retailers to flee for fear of new and very restrictive regulations.

Generally, veterans of digital asset investments qualify this type of massive outflows of funds with the term "FUD", which stands for "fear, uncertainty and doubt". They argue that "this market is supported by solid fundamentals and therefore investors should seize this opportunity to pocket cryptocurrencies at bargain prices," Aslam stressed.

However, no one quite dares to sign the death warrant for the correction, as the sense of uncertainty and roller-coaster ride in the markets shows little sign of letting up for the remainder of the week. "A lot could depend on the Fed's communication on Wednesday and whether they strike the right balance between taking inflation seriously and not raising rates too aggressively," commented Erlam. "It's a tightrope situation, but if the central bank manages to find the right balance, more than one may be tempted by these levels." Otherwise, volatility will persist.

As for Bitcoin, it faces a litmus test. "The psychological blow of losing $40,000 will be nothing compared to what can happen if $30,000 falls." "This is an important technical support level that held throughout 2021, despite numerous tests at the beginning of the year and then throughout the summer. If it gives way, the outlook could get very complicated," he explained, and, lead to, indeed, cryptowinter.