When Will The Crypto Market Reach Its Next Top?

Thinking in the moment can be the first step to investment failure. Outside of meme coins that drive their value on speculation, the fundamentals of Bitcoin, Ethereum, and other assets tell a different story. Messari, a New York-based crypto research outfit led by Ryan Selkis, has just released its 165-page report, titled Crypto Theses for 2022, which aims to sum up the year and make predictions for 2022.

What Happened To Bitcoin’s Bullrun?

It seems that most Bitcoin forecasts failed to materialize, for the moment. The simplest way to describe Bitcoin’s price movement is to say that it reset itself. More precisely, BTC is now at roughly the same price range it was on February 8th 2021, at $46.7k.

However, the market sentiment between those two points is inverted. At that time in February, the Crypto Fear & Greed Index was at 95, denoting extreme greed. Now, the index is at 21, denoting extreme fear. Meaning, the present market sentiment is the lowest it has been since December 2018, following a 50% flash-crash inside a couple of days.

From this sentiment inversion, but equal BTC price, we can conclude the following. People who have entered the market this year did so under the expectation that Bitcoin would at least double in value and enter the $80k – $100k range by the end of the year, as was the supposition of most forecasters across social media. On November 10, when Bitcoin reached its ATH of  $68,789, it appeared that that’s exactly where Bitcoin was heading.

Even so, the Bitcoin market is rife with speculation manifested through leveraging and options. As noted previously, Bitcoin’s open interest remained strong despite the Omicron variant and liquidations worth over $2 billion. However, it did sour the investor mood and expectations, triggering a drop across markets.

This table shows the Bitcoin UTXO (unspent transaction output) age distribution model. This data tells us when BTC has been moved; a higher UTXO age denotes HODLing, while a UTXO age drop denotes higher activity.

This then indicates whether a market is turning bearish or bullish. However, there is opposition to the selling pressure generated by spooked investors. Seeing the dip, retail investors (holding less than 1 BTC) have jumped at the opportunity to buy more BTC, just as it happened during the COVID crash in March 2020.

Furthermore, we see that BTC exchange balances keep dropping, while the key ~$42k area of support has been defended multiple times during the year.  With this in mind, it is more likely we are seeing a temporary BTC drop rather than a prolonged bear market.

After all, not only are Bitcoin’s on-chain indicators not bearish, but there are more institutional investors present in the space since February. Taken altogether, the extreme fear sentiment is fighting both fundamentals and bullish on-chain data.

What Does the Messari Report Say About Bitcoin’s Price Moves?

The Messari report paints Bitcoin as an asset without a true rival. To demonstrate this, it uses Coin Metrics’ indicator called market-value-to-realized-value (MVRV). By combining these metrics, MVRV makes an estimate for if the price of an asset is undervalued or overvalued.

Historically, a good strategy has been to take profits when MVRV hits a ratio of 3. This happened in 2011 for four months, 2013 for ten weeks, and in 2017 for three weeks. This year, it happened for three days at the beginning of the year.

Following this long-term trend, the next time Bitcoin hits 3, it should be within the $100k range. However, if the progressively shorter window continues, one should keep vigilant to not miss the opportunity.

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Is Ethereum About To Flip Bitcoin?

For a while, it seemed that Ethereum was going to decouple from Bitcoin as the dominant cryptocurrency, acting as the moon to Earth’s oceans. However, Ethereum’s resistance was quickly crushed, having dropped 13.56% during the last 7 days, even more so than Bitcoin which only dropped by 7.53% during the same period.

The Messari thesis against Ethereum’s flippening this cycle is supported by its rampant ETH gas fee crisis, making the smart contract platform unaffordable for retail investors.

While it is true that Ethereum’s Layer 2 solutions are helping mitigate this problem, such as Arbitrum, Polygon and Loopring, it is also true that pure Layer 1 platforms offer more elegant and simplified experiences. Solana, Cardano, Polkadot, and Avalanche form a $133 billion market cap, which is nearly 30% of Ethereum’s.

These Layer 1 competitors and potential Ethereum killers don’t have the gas fee baggage or a funding problem, but they do have to convince hundreds of thousands of new investors to flock to their killer dApps. During the current market slump, this may be more difficult to accomplish, which suits Ethereum just fine ahead of its Beacon Chain docking somewhere around H2 2022.

Messari’s Long View on Cryptos

In the chapter Surviving Winter, the Messari report reminds investors that they will be confronted with a deluge of negative sentiments from crypto critics. These range from government regulations to those saying the entire market is a bubble.

To keep a healthy perspective in such an environment, one should take stock of the fundamentals:

• Does a centralized monetary system seem more stable than a decentralized one?
  
• Does Web3, even in its early stages, bring improvements to both the internet and monetization models?
  
• Does corporate interest in NFTs and other Web3 building blocks indicate an uncharted, yet fertile territory?
  
• Is there sufficient capital to fund the most promising blockchain projects?
  
• Lastly, are these trends poised to bring dramatic gains within 5-10 years?

If the answers to these questions are mostly positive, the current extreme fear sentiment shouldn’t be too bothersome for either retail or institutional investors.

Do you think bear and bullish cycles will become less relevant, as crypto adoption accelerates further? Let us know in the comments below.