The former crypto business behemoth FTX's bankruptcy is the most recent shady development in a sector frequently shaken by crises.However, following each catastrophe, cryptocurrencies have traditionally risen to new heights. Blockchain and other cryptocurrency endeavors are strengthened as new, more robust incarnations of themselves by whatever doesn't destroy them.
The price of Bitcoin (BTC) has survived several notable setbacks, including Mt. Gox, other bankruptcies, security breaches, and macroeconomic concerns. For the first time in two years, BTC fell below $16,000 earlier in the week before most recently trading slightly around $17,000. Its current value is within striking distance of its last high point, which occurred during the late 2017 crypto bull market.How do markets bounce back after cryptocurrency's most recent setback? To extend a boxing analogy, we're still in the early post-apocalyptic rounds. Let's think about a few constants.
1. Bitcoin continues to be a network that enables payments between parties without needing money. With a limited number of 21 million coins, its currency, bitcoin, continues to be a peer-to-peer form of electronic payment.
2. Ethereum is still used to create decentralized apps. The Ethereum network continues to run on its ether (ETH) coin. Ether can still complete yield, conduct transactions, and store value. Because of Ethereum's most recent update, the Merge, which has caused a temporary decrease in supply, ether has turned into a deflationary asset lately.
The laws of supply and demand continue to be in favor of bitcoin and post-Merge ether. Each volume is constrained, and the public remains strong, increasingly including institutional investors.
However, the trajectory of prices for other cryptocurrencies is still being determined and dependent on a number of variables, including how well the protocols can carry out their plans and interact with users.
In addition, a strengthening economy, a more stable sociopolitical environment, and more obvious crypto regulation support markets. A new fiasco and an abrupt economic turnabout from the current hopeful indicators would probably result in a fall and fresh concerns about the future of cryptocurrencies.
This week, positive news reached the markets with CoinDesk's report that October's increase in U.S. consumer prices was less rapid than anticipated. The Federal Open Market Committee's (FOMC) efforts to stem its rise and the inflation overhang have been a recurring topic.
Economic issues do still exist, to be sure. For instance, the difference between the 10- and 2-year U.S. Treasury bond rates are still negative. This yield curve's inversion, evident since July, has traditionally predicted economic downturns.
The most significant long-term threat to the American economy is inflation, which the FOMC is steadfastly dedicated to combating. Furthermore, the economic environment stabilizes or avoids shocks that may move markets.
It would be an understatement to suggest that BTC and ETH have been oversold as FTX has collapsed. But given that prices have recently recovered and are no longer as oversold, investors shouldn't interpret this pattern as a signal to purchase.
The Relative Strength Index (RSI) for BTC and ETH is 35 and 40, respectively. RSI values below 30 often indicate an item's price is undervalued.
According to historical data, the RSI values for BTC and ETH don't suggest significant change over the following 30 days.
Since 2015, BTC's RSI has slipped 1,005 times between 30 and 50. ETH's RSI 682 times has maintained the same range since 2017.
Since then, the average 30-day performance after those events has been -1.1% for ETH and 3.03% for BTC.
The previous week's support levels of $20,000 and $1,300 for bitcoin and ether, respectively, will likely now act as resistance.
Following a peak on November 9, on-chain data indicates a drop in BTC and ETH moved to centralized exchanges.
People frequently move coins to buying and selling system, so this is something to keep an eye on. Historical data must also be considered for this statistic as a less trustworthy comparison.
Given the unrest, investors will only use exchanges as transactional tools and retain their currencies there for significantly shorter periods.
The funding rates for Bitcoin, which are sometimes regarded as a gauge of emotion, have made a significant flip back in the right direction.
The person's temporal horizon will determine the ultimate decision. Market contagion effects are still present, not to mention the impending burden of government regulation.
The fundamental ideas behind bitcoin and ether have not altered. As a result, despite extra difficulties, the recent volatility may create a rare chance for optimistic investors.
Wellbeing of the Industry
Finally, we have good news for the industry itself. During this troubled year, we saw many big companies crumble to dust because they mistreated the essential part of building a successful project: their customers.
Do you know how they say you will get burned if you play with fire? The customer's money and net worth were the fire in this case. The positive side of all this is that VCs and investors are more careful about future projects they invest in. Shortly, we will see more real projects that provide value while respecting the fundamental laws of ethics.
As you can see, not everything in the industry is all black. The good news is that we must wait for this to pass. Stay strong, people.