It is evident that market participants continue to be concerned about possible FTX fallout contagion. Therefore, market participants are unloading their assets from the exchanges, which could lead to the final stage of the ongoing bear market. However, a macro expert predicts that when investors start investing again in digital assets, the market for Bitcoin will grow tremendously.
Raoul Pal, a former Goldman Sachs executive, said that an uptrend in bitcoin will begin when the macroeconomic environment improves enough to cause an increase in liquidity.
“When liquidity returns (the biggest driver of institutional allocations), the value of the network should rise, which then brings in more investors (or vice versa – # of investors rising will bring in more investors) which creates a multiplier effect, giving exponential returns.”
Pal said that given the current level of network activity, bitcoin is poised for an explosive rally. He stresses that even though the transaction value decreases during a bear market, the proportion of active users increases. Due to the mathematical multiplier, prices increase exponentially as adoption (users) and value (use) increase.
He also said that Metcalfe’s Law-based Bitcoin model demonstrates that network users have not decreased as in prior bear markets. Metcalfe’s Law argues that a network grows in value as the number of users on the network increases.
Network activity levels peaked in 2020 and again in 2021 and have been declining since then. According to Pal, the magnitude of this liquidity cycle correction is far less than in earlier examples.
“The number of active users is pretty flat on average. Note how big the number of active users was in 2018 and the number who left in 2019.This bear market is very different as users have remained broadly stable as deeper adoption takes hold vs pure speculation.”
The sharp fall of bitcoin over the past few months has resulted in a lot of pressure on all market participants. Fearing further downside, many investors sold their coins at huge losses and withdrew from the market. BTC is now trading at $16,686 at the time of writing.
