Crypto Market: Sustainable Rally or Dead Cat Bounce?

The crypto market took a major beating in 2022 amid an uncertain global regulatory environment and the geopolitical situation. But, the intensity of the sell-off increased significantly after the Terra fiasco. LUNA, once known as one of the world’s most valuable cryptocurrencies, lost its entire value within a few days. Amid jittery market conditions, investors pulled out billions of dollars from the market. While Bitcoin plunged below $28,000 on Thursday for the first time in almost 12 months, the situation across the altcoin market was even worse.

But, the crypto crash is nothing new for those who held their assets in the market corrections of 2017 and 2020. Throughout its history, the crypto market has emerged as the winner for most of its long-term holders. Is the situation different this time? Well, if we look at the trend today, it seems like the recent sell-off was one of many we have seen before. On Friday, crypto bulls made a strong comeback with a market rally of more than $150 billion. Bitcoin and Ethereum spiked by over 10%, but altcoins jumped by nearly 25%.

Crypto bulls termed the latest rebound as a sustainable rally while critics think that it is nothing more than a dead cat bounce. Leading names in the crypto ecosystem believe that the long-term potential of Bitcoin and other digital currencies is still massive, however, investors must stay away from the market during extremely volatile conditions. “The situation on the market is still tense, therefore, traders should brace themselves for increased volatility in the coming days,” Farah Mourad, the Senior Analyst at XTB MENA, said.

According to Mourad, the market has stabilized for now, but lately, the crypto assets mimicked the stock market movements, something that has changed in the growing digital asset ecosystem.

LUNA Crisis

The crash of LUNA will be remembered as one of the biggest events in the history of the cryptocurrency market. Farah believes that the LUNA crash jolted the entire market and fueled uncertainty among retail and institutional investors.

“The collapse of Luna ultimately poses no threat to the fundamentals of other projects that have proven their worth, although it may hurt market sentiment at least in the short-term. This is typical of periods of cyclical downturns, during which a sizable portion of investors look for opportunities and choose to accumulate cryptocurrencies in anticipation of another bullish cycle,” Farah added.

A ‘Cautious’ Opportunity

Analysts mentioned that for those who missed the crypto rally, the recent market correction is like a crypto sale. However, it is more like a ‘cautious’ opportunity than going ‘all in’.

"With major blue-chip cryptocurrencies such as BTC and ETH at major support and massively oversold according to their 4H RSI, traders and investors alike will naturally jump in and buy the dip. The markets might have priced in the rate hikes sooner, and we are less likely to see more carnage in the markets. If all goes well, the market should be poised for a rally. However, with Powell's recent comments stating that inflation remains a priority, it does not seem like we are going to get a policy pivot anytime soon. This is why we have to remain cautious,” Whitney Setiawan, the Research Analyst at Bitrue crypto exchange, commented.