Vetle Lunde, a crypto market analyst at K33 Research, sees parallels between bitcoin’s recent rally from the 2022 low and the price pattern from 2018 to 2019.
In an interview on CoinDesk TV’s “First Mover” program on Monday, Lunde said that “the current drawdown and recovery phase is remarkably similar to that of 2019, both in duration and price movement.”
In a research note to clients last week, Lunde wrote that bitcoin could reach $45,000. BTC was currently trading at around $29,440, down 2%, although it is up approx. 80% in 2023. The return follows a year of distress, in which several major firms declared bankruptcy, sending risk-averse investors fleeing crypto markets.
“We saw throughout the latter part of 2022 a lot of forced selling, and also selling from investors who became cautious,”[ads1]; Lunde said. – This has led to people being underexposed. And has also enticed many people to short (crypto) be conservative in adding exposure. This creates this dynamic where bitcoin feeds off your short squeezes and moves higher.”
He added that negative to neutral derivatives sales, despite recent gains, were further signs of investor caution. That sentiment could change, although the market’s relatively low liquidity remained a potential weight on future pricing.
Lunde believes that weak signs last week that the US central bank would scale back its hawkish monetary policy amid mildly encouraging inflation data could boost market sentiment.
He blamed crypto prices’ swoon last year in part on firms overexposing themselves when interest rates were zero.
“There was a lot of spending, a lot of focus on growth,” Lunde said. “So you had this environment where miners were taking a lot of fiat that contained a lot of bitcoin and then being exposed to falling prices, as well as all the crypto banks starting to neglect due diligence.”
But the industry-wide crisis of 2022, which included several major firms declaring bankruptcy, including crypto hedge fund Three Arrows Capital, has already benefited markets by weeding out bad actors, Lunde suggested. “Many of these rotten fruits have been washed out of the market,” he said. “So the whole market is in a more robust stage right now where it can handle higher interest rates for longer.”
He added: “The industry has learned. I’m pretty sure we’ll see similar types of crises in the future, unfortunately. But for now, that kind of risk feels washed out of the market. So the market feels a lot safer at the moment.”