Despite the ongoing downturn in the crypto market stoking concerns for many industry watchers, a growing body of developments suggests a new bull market could be on the horizon, according to a recent analysis by crypto trading firm Cumberland Crypto Assets. Given the nature of crypto and the tectonic shifts beneath it, we do not expect this paradigm to last,” the company said in a Twitter thread detailing its forecast for the crypto markets.
“There are many reasons for concern among market participants: volume and liquidity have dried up and are at yearly lows by various measures,” the company said. While this may be a celebratory phenomenon, the mood is bleak: dozens of crypto companies are severely restricted or out of business, and the industry’s future is as bleak as ever. That said, prices have reached a surprisingly buoyant equilibrium well below multi-year lows. Cumberland believes exploring this dichotomy is vital to predicting cryptocurrency price action. The company’s analysis suggests that after euphoric highs in 2021, crypto markets have spent much of this year “rebalancing towards more sober technology valuations.”
Subsequent crashes of stablecoin Terra and major cryptocurrency exchange FTX acted as accelerators for this trend, depriving cryptocurrency credit markets of oxygen and pushing sell-offs into a vacuum, according to the trading firm. “The next phase of price action depends almost entirely on whether there will be further liquidation sales after these billions of dollars worth of liquidations and trillions of dollars in lost market cap,” Cumberland said. While several portfolios remain under the oversight of bankruptcy trustees. These crypto assets will need to be injected back into the market in the coming months and years, “it is becoming increasingly clear that in most scenarios the market is indeed facing a crypto deficit and not a surplus,” added add the company.
Failing companies like FTX and its affiliate Alameda Research, as well as several insolvent lenders, would not have filed for bankruptcy had they not sold their cash as a last resort to avoid Chapter 11 proceedings and stay afloat, eh suggested by Cumberland. “In other words, you don’t go bankrupt if you have tradable coins left to sell. We may have seen the complete sell-off of these coins over the past few months,” the firm tweeted. The analysis predicts that by 2023, adoption should be a factor in the sources of market recovery. With billions of users, “big tech companies continue to integrate their blockchain technology.”
The volatility of this asset class has drawn attention from across the spectrum of investors, both retail and institutional,” Cumberland said. “We do not envision a sustained paradigm of indifference and price stability. Instead, we expect a volatility fight as the market reconfigures and Web3 business models recalibrate. An uptrend will eventually follow this.
