What Happens if End-of-2021 Crypto Bull Market Fails to Emerge?

Cancel Your Christmas Crypto Plans

It’s worth highlighting that things actually look worse for the cryptocurrency market than it does on the surface. Not only are prices slipping consistently downwards for pretty much every coin in the market, but concerted efforts by the two biggest stablecoin issuers — Tether and Circle — to steady the ship are currently failing.

For instance, the supply of tether (USDT) has risen from around 73.5 billion USDT on November 26 to 77.2 billion USDT today. This is an increase of ostensibly $3.7 billion in buying power, yet it hasn’t stopped bitcoin and other coins from slumping to new lows.

Likewise, the supply of USDC has risen from 34.4 billion USDC on November 12 (a couple of days after bitcoin set its current ATH) to 41 billion USDC today. Again, around 6.6 billion in ‘virtual’ US dollars have been injected into the market, but to little avail.

This is disconcerting. It seems that organic demand from the wider investing public is dropping to such an extent that even this outsized contribution of ersatz US dollars — reputedly worth just over $10 billion — is having little effect in propping up prices.

Source: Twitter

In other words, this month really doesn’t look like it will be a good one for bitcoin or the wider cryptocurrency market.

Yes, more than a few relatively high-profile analysts had predicted new records for December. For example, analysts at Kraken had used historical trends to suggest a price of around $96,000 for bitcoin by the start of 2022, while JPMorgan’s Nikolaos Panigirtzoglu had suggested $73,000. Meanwhile, the controversial Crypto-Twitter forecaster PlanB had been targeting $100,000 for December for many months.

Alas, such targets are not going to be reached by December 31, 2021, at least in this author’s view. Not only does the current price (and stablecoin) data suggest this, but a range of factors are combining to depress the market right now.

This includes fears related to the coronavirus pandemic, economic worries (related to high inflation and potentially rising interest rates), incoming cryptocurrency regulation (especially in India), incoming Mt. Gox rehabilitation payments, and also a general absence of positive narratives and data surrounding the growth of the cryptocurrency industry as a whole (e.g. Coinbase’s disappointing Q3 results).

So What Happens if the End-of-Year Crypto Bull Market Doesn’t Arrive?

Assuming that the bull market doesn’t arrive in time for Christmas or the New Year, here’s what will likely happen.

Firstly, we just referred to “a general absence of positive narratives” about crypto. Well, there had been one positive narrative up until now: that bitcoin and other cryptocurrencies would potentially end 2022 by setting new all-time highs.

Without this happening, the market will lose the one primary narrative that was helping it to retain much of its value. Put differently, the absence of hope will likely cause the market’s current decline to accelerate.

While predicting narrow price levels is always a fool’s errand, the price of bitcoin could fall substantially below its current value. The same goes for most major cryptocurrencies, with some small-cap altcoins perhaps continuing to serve as speculative playgrounds for day traders and whales.

Needless to say, a sustained and sharp fall is going to hurt retail traders who bought into bitcoin (or other cryptocurrencies) at high levels, hoping for an end-of-year surge. These traders would need to do either one of two things:

1) Cut their losses before they get too big; or

2) Hold on for the long-term (and we really mean the long-term), for when BTC or any other coin finally exceeds the prices at which these traders bought into them.

A substantial drop will likely result in the market stagnating, at least for several months. The 2017-18 bull market famously ended with around two years of decline and weak or non-existent growth. However, with the current cryptocurrency market now bigger and also home to more genuine investment (particularly from institutions), it’s more probable that the stagnation/recovery period will be shorter.

Again, predicting exact time frames is akin to predicting exact price levels. That said, this author would expect the downturn to end at any point between the end of Q1 2022 and the end of Q2 2022.

Why these particular endpoints? Well, the biggest story of 2022 is likely to be Ethereum’s transition to Ethereum 2.0. This will see it adopt a proof-of-stake consensus mechanism, making it more scalable and efficient once its current chain merges with Ethereum 2.0’s beacon chain.

According to ethereum.org, this event is likely to happen in “~Q1 2022/Q2 2022.” Now, the last time Ethereum successfully executed a significant upgrade — on August 5 — it ignited a significant market rally. Indeed, the market’s overall cap rose from $1.6 trillion on August 5 to nearly $2 trillion a week later, as well as to $2.4 trillion a month later.

Needless to say, the move to Ethereum 2.0 is much more significant than August’s London upgrade. It could provide the market with the positive news story it may be craving by that point, serving to overturn several months of decline and/or stagnation.

Of course, we may instead hope that the end-of-2021 crypto bull market does in fact arrive after all. Because in that case, the arrival of Ethereum 2.0 would simply accelerate an already fast-growing market.