Forex Analysis & Reviews: 01.06.2022 - Venture capital investments...

01.06.2022 12:20 PM

Venture capital investments may help Bitcoin survive bearish trend

Bitcoin and the cryptocurrency market have been in a bear market for over six months now. During this time, digital assets have fallen to local lows, losing about 60% of their absolute highs on average. The total market capitalization fell to $1.2 trillion and settled on a solid support zone. Other sectors of the crypto market, such as DeFi and NFT, also lost more than 50% of their volumes at the peak of the bull market. However, the market continues to receive support from long-term hodlers and venture investors.

JPMorgan is completely confident that the cryptocurrency market will emerge victorious from the crypto winter thanks to the significant support of large venture capital investors. Bank analysts said that the number of venture deals in the crypto space remains at a high level, despite a strong correction and a significant decrease in liquidity in the market. The digital asset market peaked in December 2021, and since then, the decline in transactions looks insignificant. The main beneficiaries of venture investments are altcoins, which receive infusions through decentralized products. JPMorgan experts believe that this will allow the crypto market to better respond to rising volatility and survive periods of selling pressure.

The impact of venture capital investments on the cryptocurrency market should not be overestimated. As we have already said, the main injections go to decentralized projects based on altcoins. However, at the current stage, it is Bitcoin that is the main force in the crypto market, which determines the further movement of the entire industry. This is evidenced by a significant increase in the level of BTC dominance in the market in recent weeks. With this in mind, venture capital flows help to preserve part of the capitalization, but direct investments in digital coins are still decisive.

JPMorgan experts argue that the surge in venture capital activity was made possible thanks to large volumes of dollar liquidity in the markets, as well as a bull market for cryptocurrencies. In the current situation, there is no doubt that venture capital flows will be reduced, as liquidity is rapidly falling due to the global economic and geopolitical crises. In June, the Fed's program to withdraw more than $45 billion a month starts, and soon this figure will reach $90 billion. Under such conditions, investment activity will be aimed at preserving capital in risk-free assets, such as the US dollar. The crypto market will be able to maintain investment attractiveness, but the records of the bull market period of the industry will not be reached.

With this in mind, venture investments do not have a sufficient impact on the quotes of the cryptocurrency market and are unable to smooth out the downward trend of digital assets. Last week, an inflow of $87 million into crypto funds was recorded, and the May inflow amounted to about $500 million. This was reflected in the quotes of Bitcoin, which reached a local high at $31.5k, where the upper limit of the $29k–$31.5k range passes. However, at the same time, we see that the price has hit the support zone, and the formation of uncertain candles indicates a decrease in buying activity.

At the same time, if you look at the situation more broadly, you can see a similar situation in the summer of 2021 on the weekly timeframe. Then the price also formed a local bottom in a similar way, after which there was a serious reversal and a bullish trend began. The pattern is similar to what we are seeing now, but the situation is radically different.

Fed policy, liquidity tightening, war, rising inflation and gradually emerging stagflation suggest that an upward movement following the example of 2021 should not be expected. However, if the asset manages to start a bullish engine and gain a foothold above $35k, then the probability of a medium-term trend will increase. In general, there is no doubt that the market is in the stage of an upward correction within the bearish trend.