It’s been a brutal couple of months for crypto investors as recession fears heighten. Bitcoin nosedived from above $45,000 at the beginning of April to levels below $20,000 on June 30 — sinking below $18,000 in the process.
Meanwhile, analysts from Deutsche Bank believe cryptocurrencies are due for more pain.
Crypto Market Not Yet Done Retracing
According to a recent report published by Deutsche Bank analysts Marion Laboure and Galina Pozdnyakova, the bloodletting in the crypto markets might continue because of the system’s complexity.
The pair highlighted the crumbling of the Terra ecosystem and the highly publicized Celsius catastrophe, noting that getting token prices to stabilize will be challenging as there are no “common valuation models like those within the public equity system.” Additionally, the cryptocurrency market is highly fragmented, the report said.
The strategists further observed that speculative trades will entail the use of different coins simultaneously, which raises spillover effects. The liquidity that is currently in the markets could swiftly disappear, subsequently eroding investor confidence and increasing the possibility of contagion.
The unfavorable macroeconomic conditions across the globe are also a serious concern for investors. According to Deutsche Bank, risk assets like cryptocurrencies are gravely affected by quantitative tightening practices undertaken by central banks. These macro risks are exacerbated by the possibility of a U.S. recession next year.
Michael Burry, the investor made famous by The Big Short movie, shares Deutsche Bank’s bearish outlook. The hedge fund manager believes we are currently at the midpoint of the gargantuan crypto and stock market correction.
The Bright Side: BTC May Rebound To $28K By December
Although the bank’s analysts expect the crypto meltdown to continue, it’s not all doom and gloom. They note that the crypto market has moved in tandem with the S&P 500 and Nasdaq since late last year.
A rising tide lifts all boats. The bank harbors the opinion that the S&P will recover to January levels and that the benchmark crypto’s strong ties to the traditional markets could lead to a 31% price jump from present price levels. This would see bitcoin safely back above the $28,000 region by the end of the year, but still a far cry from where it was in November 2021.