Have cryptocurrencies defined a market floor?

In the general framework, if we broaden our view and analyze the broader picture, there are four reasons to believe that cryptocurrencies have marked a market bottom. We are about to end the first month of the year, the cryptocurrency ecosystem has benefited from a recent general revaluation, with an average of 32%. Obviously we have to tread carefully after this movement, since we can possibly see corrective movements during these following days.

1. Bitcoin leads the rise of cryptocurrencies.

As we have regularly witnessed in the cryptocurrency market, bitcoin always leads the way of the market trend. Mainly because it is the one more market capitalization it has y provides most of the market liquidity. And once its rally cools, investors will be able to start taking on greater risks and allocating more liquidity to altcoins. Since last November, Bitcoin is up 50% and gained 5% market share of cryptocurrencies. This scenario has quite a few similarities to the market bottom of the 2018-19 bear market; As the bitcoin dominance roseneighbourhood, price accompanied him simultaneously.

2. More and more hodlers are joining the movement.

Although the price of bitcoin went down last year, the network seems stronger than ever. Blockchain data shows that more and more investors are joining the network and they hold their coins for the long term. It should be noted, as we recently explained to you, that we are less than 64 weeks away from the big Bitcoin Halving event. These accumulation periods have generally been found during bear market bottoms in the past. As we see in the following graph, Coin Days Destroyed (CDD) activity is no longer experiencing the same spikes in activity that we had previously witnessed during the negative events of 2022. This means that more investors join every day to the thought that possibly, we have marked the bottom of the cryptocurrency market.

3. We have learned from overleverage.

During the year 2022, the cryptocurrency market I was overleveraged massively. It was a general trend in the market both on the part of the retail investors as of the Institutional. This trend was what caused the great liquidations that we live during the months of May and June 2022. Large cryptocurrency funds such as Three Arrows Capital (3AC), Voyager or Celsius were the biggest victims of the Terra Luna collapse. Let us remember that Terra became a blockchain of 60.000 million and imploded in May lose your UST stablecoin its peg to the US dollar. He high leverage to which these companies were exposed was what led to bankruptcy.

Later, when we thought that everything bad had happened, FTX arrived to collapse the crypto market againo in November. Many investors were heavily exposed to FTX, which led to the price of bitcoin retreat to $15.500. It was recently when entities like BlockFi and Genesis joined the bankruptcy party, although this time the market has reacted differently, seeing how he has recovered levels prior to the FTX collapse.

4. Macro sentiment is changing.

Much of the bearish movements in the cryptocurrency market have also been seen influenced due to the high levels of inflation in the world and the aggressive interest rate increases by central banks with the aim of controlling it. Combining high inflation, rising interest rates and an economy with a perspective of economic slowdown negatively influenced the cryptocurrency market. Although it seems that inflation is decreasing progressively, it is still far from the objective of the 2% set by the Fed. Although the Fed is going to keep interest rates high for longer, it seems that the market is starting to notice a slight improvement in the situation.

As we well know, the Fed expects a scenario of soft landing fueled by rate hikes that cool down enough inflation without leading to economy to recession. Although this scenario could occur, it is also possible posibilidad that inflation goes down on the eve of a collapse in economic growth (i.e. a recession). Although if that were the case, the Fed would still will cut rates to shake up the economy, and that can also be positive for bitcoin and the entire ecosystem.