Last week, the sharp decline in the Bitcoin market became one of the biggest events in the financial market.

Overnight, Federal Reserve Chairman Powell's positive remarks on improving inflation prospects eased market tension, and the probability of markets betting on a September rate cut rose to 73% from 68% last week. Bitcoin's long and short power competition unfolds. As of press release, the price of Bitcoin is about 58,000 US dollars, which has rebounded more than 7% from last week's low price.

With the implementation of the Bitcoin halving incident on April 20, Bitcoin began a “volatile pullback” mode. However, judging from the trend of one year after the end of the previous 3 Bitcoin halves, Bitcoin often experienced a period of fluctuation for about 4 months after the halving, and only then did it rise sharply. If this trend continues, then it is likely that we will see Bitcoin begin to climb in late summer.

What are the negative factors for this round of decline?

Judging from this halving cycle, due to the halving of Bitcoin network mining rewards in April, some Bitcoin miners are selling part of their token inventory to support their finances, which is also putting pressure on the crypto market.

In addition to this, Richard Galvin, co-founder of cryptocurrency hedge fund Digital Asset Capital Management, said that one greater reason for Bitcoin's weakness in the short term comes from Mt. Gox

Combining multiple announcements from the MtGox Exchange, the operation to return Bitcoin (and Bitcoin Cash) will begin in July. The return of 0.14 million bitcoins “locked in for ten years” into circulation has also raised concerns in the market that it may cause a large number of tokens to be sold off, putting pressure on the market.

Furthermore, the analyst also pointed out that the US and German governments are selling previously seized bitcoins, which also poses a downside risk to cryptocurrencies.

Furthermore, at the same time as Bitcoin declined, the demand for Bitcoin ETFs also cooled down. According to CoinShares data, the capital inflow into Bitcoin ETFs in the second quarter of this year was only about 2.6 billion US dollars, while the capital inflow in the first quarter was about 13 billion US dollars, down 80% from the previous quarter.

At the time of the pullback, is it a good opportunity to break the bottom?

At the time of every cryptocurrency pullback, there are always long and short divisions in the market. Judging from the current market sentiment, Bitcoin's slump may continue throughout July, but the market is still optimistic about the cryptocurrency's performance in the second half of the year.

As far as the current crypto market's judgment on future market conditions is concerned, the majority are still bullish. The main reason behind this is that negative factors such as government, ETFs, miner sell-off, and Mt.Gox payments have already been released; there are quite a few positive expectations for the second half of the year, such as interest rate cuts, general elections, FTX debt repayment, Ethereum ETF approval, etc. In particular, the crypto bull market cycle theory made many investors more optimistic about the future market.

Bitcoin has yet to reach the peak of its current appreciation cycle and may surpass its all-time high this year, according to CCData research reports. According to the report,

Historical trends show that the halving event always heralds the arrival of a period of price expansion. This period may last from 366 to 548 days. “Before the peak of the cycle occurs, each halving cycle will be longer than the previous one. This is due to the maturity of the asset class and the decrease in volatility.”

The report acknowledged that the “influence of institutional players in the industry” in the current cycle had “changed previous trends”, adding that low trading activity could occur in the third quarter, which in turn could suggest more sideways price movements.

The report also said that the upcoming US Ethereum ETF and other similar products around the world “are bound to bring more capital, liquidity, and demand to this asset class.”

Also, another important historical data supporting CCData's opinion is that the price increase of Bitcoin occurred in a short period of time. For example, in the 2012 cycle, of Bitcoin's increase from halving to its all-time high, 91.4% of the increase was achieved within four months before the peak of the cycle. In the four months before the 2016 and 2020 cycles hit their respective all-time highs, they accounted for 78.8% and 71.5% of the total increase. However, there has been no such parabolic expansion in the current cycle.

Also, as the market declined, technical and fundamental analysts provided some ideas for the next steps.

CryptoQuant analysts said that the current Bitcoin miner capitalization index is close to the bottom after the FTX crash, or indicates that the market has bottomed out. Specifically, the Bitcoin miner capitalization index is close to the bottom level of the market after the FTX crash in 2022, which may indicate that the Bitcoin market has bottomed out.

*Miner capitulation means that some miners reduce the operation or sale of mined bitcoins in order to make ends meet or hedge risks.

Additionally, CryptoQuant analysts also stated that Bitcoin's Puell multiples “are generally suitable for finding the bottom of a bear market, but they can also predict the end of an adjustment period during a bull market.”

According to its explanation, the area circled in red below is a situation where the profitability of miners declined rapidly during the bull market cycle and the Puell multiple indicator plummeted. The indicator declined sharply during the 2016 and 2020 bull cycles, and Bitcoin then began to rise strongly.

The Puell multiple is the ratio of Bitcoin's daily issuance value (in dollars) to the 365-day moving average of that value.

Meanwhile, the market also believes that there are still quite a few favorable factors to stimulate Bitcoin to strengthen again in the second half of the year.

If the Federal Reserve finally announces interest rate cuts at or after the September meeting, it will certainly be good news for the cryptocurrency market.

Historical data shows that the Federal Reserve's interest rate cuts usually drive up the price of cryptocurrencies such as Bitcoin.

Because interest rate cuts will boost risk asset market sentiment, cryptocurrencies will also be favored by capital as an emerging asset, and a relaxed monetary environment will also create favorable conditions for the financing and development of cryptocurrency projects. Furthermore, interest rate cuts may also weaken the US dollar, which will also boost the price of cryptocurrencies, as cryptocurrencies often have a negative correlation with the US dollar.

In addition to the Federal Reserve cutting interest rates, the US election is also an important favorable factor.

According to the Financial Times article, Bitcoin is expected to rebound at the end of July, which will usher in a “Trump frenzy” bull market.

Currently, there are more and more discussions about the “Trump deal,” and the prospect of Trump winning in November may drive Bitcoin higher in the second half of the year. Since the first televised US presidential debate, this belief has only grown unabated. This optimism is due to Trump being a more pro-cryptocurrency candidate.

Julius Baer analyst Manuel Villegas said: Cryptocurrency mining companies will also benefit, particularly Trump's energy policy proposal, which could allow other energy sources to be used for Bitcoin mining.

However, the market also said that the “Trump deal” is partly based on Biden being his opponent in November, and if Biden continues to run for election, Bitcoin bulls will gain momentum. Bitcoin is likely to continue its slump if Biden withdraws and the new candidate is seen as a chance to beat Trump.

Therefore, the market believes that by the end of July, the possibility of whether Biden will continue to run for election will gradually become clear, Trump's probability of winning will further increase, and the price of Bitcoin will rise.

Furthermore, an Ethereum spot ETF is expected to be approved, and the market sees this as one of the recent positive factors for the cryptocurrency market. But many ETF and cryptocurrency analysts believe that the launch of a new spot Ethereum ETF will be less impressive.

Risk warning: The virtual currency market is extremely risky. From time to time, the market has skyrocketed and plummeted, so you need to be careful when investing.

Editor/Somer