Bitcoin price has remained stable, given the troubled macroeconomic and geopolitical situation. It has also continued to consolidate in a narrow price range since September 2022. However, a rise in the Fed’s interest rate is reducing appetite for higher-risk assets, including Bitcoin. Independent analyst Nathan Aisenstadt predicts a crypto crisis and says BTC will drop 35%. We have prepared Nathan Aisenstadt’s reviews and analysis for our readers.
Risks for the cryptocurrency market
The prices of the most important world indices, S&P 500 and Nasdaq 100, rose 5% this week. This contributed to the still-pressured growth of cryptocurrency investments. The economic situation in the world continues to deteriorate due to rising inflation, which causes an increase in the cost of mining equipment.
The economic growth of China, the second largest Bitcoin mining country, accelerated slightly in the third quarter of 2022. However, it remained at its lowest level in several years. In addition, youth unemployment remains high at 17.9%. Also, these factors, coupled with low housing prices, are likely to exacerbate China’s real estate crisis. This is likely to put serious pressure on the economy of many Asian countries.
Ultimately, this will lead to a rapid decline in investment interest in high-risk assets such as Bitcoin (BTC) and altcoins. However, despite the troubled macroeconomic and geopolitical situation in the world, the Bitcoin price remains stable. It also continues to consolidate in a narrow price range since September 2022. In this article, we will analyze the reasons that indicate that the Bitcoin price has not yet reached the bottom.
Source: TradingViewCompetition among Bitcoin miners reaches multi-year highs
Despite ongoing downward pressure on the prices of various cryptocurrencies, Bitcoin’s hash rate has reached an all-time high of 257.7 Exahash per second, up 13.2% from the previous month.
Source: GlassnodeHowever, as the hash rate increases, the difficulty of mining increases systematically, which shows how difficult it is to make a mathematical calculation to find a new block and receive a reward accordingly. This indicator is up 47.1% compared to the peak reached in May 2021, when China’s policy on cryptocurrency trading and mining was significantly tightened, which then marked the migration of the mining company to Kazakhstan and the United States.
The sharp increase in mining difficulty in recent weeks reflects negatively on the increase in the cost of Bitcoin mining. Therefore, there is a decrease in the cash flow of mining companies. As a result, this creates additional financial burdens on the cryptocurrency mining industry. Also, in the face of tightening central bank policies, it will be more difficult for company management to find funds for their activities.
Source: GlassnodeAt the end of October 2022, revenue per Exahash hit a multi-year low of 3.44 BTC per day per Exahash, down 44.7% year-on-year. Since an Exahash’s daily income is 67-72 thousand dollars, the current situation is deplorable for the industry. This figure fell below the levels seen at the beginning of the 4th quarter of 2020 after the halving.
Source: GlassnodeOne of the most important metrics for predicting Bitcoin price is Mining Pulse. If Bitcoin blocks appear slower than 10 minutes, this indicates that miners have left the network due to the onset of a shock event. As you can see in the chart below, after every multi-year high in Bitcoin price, there has been a period of bearish sentiment that has resulted in the dramatic capitulation of miners. According to my calculations, the next capitulation of miners will occur at the end of 2022, with a 20% increase from the target value in the block range. It will also severely test the strength of publicly traded companies like Riot Blockchain.
Source: GlassnodeBitcoin price prediction based on mining parameters
The system developed and described on Glassnode uses key parameters such as Difficulty and Issue. The system allows to estimate the cost of mining Bitcoin. Thus, it is possible to predict the most likely BTC price ranges that the biggest market participants will begin to reach. For example, the current estimated cost of mining Bitcoin, marked with a pink line in the chart below, is $12,200. Referring to historical data, in most of the crypto crashes, including those that led to the capitulation of miners, the price of Bitcoin reached the minimums that this model extracts.
Source: GlassnodeThe effect of the Fed interest rate on the price of cryptocurrencies
cryptocoin.com As you can follow, the Fed still continues to increase interest rates. Rising interest rates often reduce appetite for higher-risk assets like Bitcoin. All in all, this means the cryptocurrency industry is more likely to continue to experience downward pressure until at least the end of 2023. This is due to the latest Fed forecasts, which expect to raise the interest rate to the 4.25-4.50 range by the end of 2022. In 2023, it should be 4.50-4.75%. This will be the highest rate in the last 16 years.
Source: Federal Reserve SystemThe stock market continues to react negatively to Fed rate hikes. Meta Platforms and Amazon stocks, for example, came under the most severe selling pressure this week. Because, in the 3rd quarter of 2022, there was a very serious decrease in operating income.
Looking at historical data, there is evidence of a correlation between the Fed’s interest rate and the Bitcoin price. Thus, on January 5, 2022, the FOMC issued minutes stating that the rate should be increased. In the same day, the Bitcoin price dropped by more than $3,000. Also, after five days, the decline was about 16.3%.
Source: TradingViewLooking back at the 2018 crypto crash, the Bitcoin price continued to drop during the Fed rate hike. However, the downward pressure on Bitcoin price ended when the Fed stopped its policy tightening in early 2019. Thus, the crypto market stabilized. And by the second quarter of 2019, Bitcoin price reached $12,000. Thus, it increased by 275% in just four months.
Source: YChartstechnical analysis of bitcoin
I use Elliott Wave Theory to predict Bitcoin price action. On November 8, 2021, a correction wave (IV) began to form, where the Ⓦ wave formed a zigzag (‘A’-‘B’-‘C’). Also, an intervening wave ⓧ continues to form at this time.
It is possible to see the wave (Y) formation from October 17, 2022, which is included in the structure of the ⓧ wave, while moving from the weekly time frame to the 4-hour time frame. It will most likely take the form of a double zigzag. As a result, I expect Bitcoin price to rise to $23,800-24,200. After that, the corrective action of this BTC will continue until the $12,700-13,600 range. Here, smart money will start accumulating ‘digital gold’ in anticipation of the last global push wave ‘V’ and Bitcoin’s halving in 2024.
Source: TradingView
