In a report, the German bank forecasts the current state of the market, weakened by two recent crypto crashes.
The cryptocurrency market, which suffered two major falls in May and June, is not immune to a new storm, considers the latest study from Deutsche Bank, which BFM Crypto was able to consult.
The report cites in particular the recent crises of certain crypto companies in the market, from Celsius to Three Arrow Capital and Babel Finance.
“The complexity of the system”
“Cryptocurrencies may continue to plummet due to the complexity of the system. It is difficult to stabilize token prices because there are no common valuation models like what may exist for stocks,” points out the report.
All the crypto companies in turmoil are particularly singled out for the mismanagement of their liquidity. It was this factor that caused major US banks to fail in 2008.
“Furthermore, the cryptocurrency market is highly fragmented. Speculative transactions are also likely to involve multiple cryptocurrencies at once, increasing contagion effects. Any liquidity that might exist in these markets could quickly evaporate, causing would erode confidence in prices and increase the likelihood of contagion,” the report continued.
The report also underlines the gloomy macroeconomic context where the US Federal Reserve (Fed) is “far from having completed its tightening cycle” and where other decisions are still expected from the side of the European Central Bank (ECB). As the cryptocurrency market becomes increasingly correlated with traditional financial markets – primarily the Nasdaq – an “additional macroeconomic shock could test recent cryptocurrency lows and rekindle contagion risks in the finance ecosystem. decentralized (DeFi),” the report considers.
Bitcoin could hit $27,000
In this context, how low could bitcoin go? The queen of cryptocurrencies is trading at the time of writing at just under $20,000. It has lost more than 70% of its value since its all-time high last November when it traded at $69,000. Beyond the internal crises that the market may suffer, how does the price of bitcoin vary? The report mentions various factors. On the one hand, the so-called psychological or behavioral factor, “often irrational”. “The value of a bitcoin will continue to rise and fall based on what people think it is worth,” the report said.
Similarly, beyond the classic phenomenon of supply and demand, and the increasingly obvious correlation between cryptos and the traditional market, other factors come into consideration. On the one hand the liquidity of bitcoin “which is low compared to its overall value and the number of bitcoins in circulation” or even the bitcoin assets which remain concentrated between very few hands, those of the “Big Whales”, which can influence its course. The study points out that only 0.04% of bitcoin holders own more than 60% of all bitcoins in circulation.
According to the report, based on the past correlation between bitcoin and the S&P 500, bitcoin could hit as high as $27,000 by the end of the year.
“This would be up 32% from its current price, but still less than half of its all-time high from last November,” the report said.