Is the Bitcoin rally over? 4 reasons why analysts are still bullish on Bitcoin

• Analysts say the cryptocurrency correction has hit investor sentiment, but there are still ample reasons to remain bullish on digital assets.

• K33 analysts said the elimination of leverage has made the market “much healthier.”

• LMAX Group strategists noted that Bitcoin’s halving could have a positive impact on prices as spot BTC ETFs would attract a wider audience.

• Macro analyst Noel Acheson said that weak stock markets could weigh on crypto assets, but that any declines would be short-lived due to other factors.

Cryptocurrency markets took a beating over the weekend, with investor sentiment plummeting from the frenetic highs seen just a few weeks ago.

Bitcoin (BTC) fell below $62,000 on Tuesday, down more than 15% from its recent all-time high above $73,000, while popular altcoins Solana (SOL), Pepe Coin (PEPE) and Dogwifhat {{WIF}} have plunged 40%-50% from recent highs.

Despite the massive drop across the market, there are still many reasons to be bullish on digital assets even if prices fall further or trade sideways for a while.

The impact of Bitcoin halving

Bitcoin will undergo its fourth halving later this week, an event that repeats approximately every four years when the supply of newly issued tokens (miner rewards) is cut in half. Historically, Bitcoin's price hasn't changed much before and after halvings, but halving events tend to be preceded by parabolic gains.

“We had been thinking there wouldn’t be a lot of additional upside momentum in terms of the halving event,” said Joel Kruger, market strategist at LMAX Group, adding that “it’s a known event that the market has already anticipated.”

However, the halving could bring some positives to the price of Bitcoin as U.S.-listed spot exchange-traded funds (ETFs) from traditional financial giants such as BlackRock and Fidelity begin to increase sales efforts to promote Bitcoin to financial advisors and wealth managers and attract a wider group of investors.

“At the same time, we do think there is room for upside given that this is one of the first Bitcoin halving events that will play out in front of a wider audience once a Bitcoin spot ETF is listed,” Kruger noted.

He added: “So the halving event could make these investors more excited about Bitcoin because they are forced to delve deeper, which could then translate into a desire to add more exposure.”

Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, noticed last week that BlackRock was promoting its Bitcoin fund, IBIT, on the Bloomberg homepage.

Withstanding macro turbulence

While the cryptocurrency market has seen momentum waning over the past few weeks, the catalyst that ultimately sparked a correction last Friday stemmed from macro events. Traditional markets became jittery as concerns grew about military escalation between Israel and Iran, while bond yields and the dollar surged as investors priced in rate cuts amid strong U.S. economic data and sticky inflation concerns.

Noelle Acheson, a macro analyst and author of the Crypto Is Macro Now newsletter, noted that the earnings yield on the S&P 500 is now lower than that of the U.S. 3-month and 10-year Treasury bonds, which could portend further declines in U.S. stocks. Normally, it should be the other way around, she explained, to compensate investors for the higher risk of holding stocks rather than bonds.

“If the stock market were to fall sharply, Bitcoin and other crypto assets would likely take a temporary hit as well,” Acheson said.

But she added, “However, the decline in cryptocurrencies will be short-lived as other ongoing narratives — store of value, halving, currency hedge, new use cases, growing popularity — will encourage investors to accumulate at lower price levels.”

Acheson said that although it is unlikely, there could be some potential positive news in the short term that would ease the upward yield pressure that has squeezed risk assets recently.

“The Fed will probably reiterate that rate cuts are coming, which should keep a lid on the rise in yields,” she said. “I don’t expect that to happen, but if it does, risk assets should do well.”

Margin Liquidation

Massive liquidation events in derivatives markets typically mark a bottom in asset prices, removing excess leverage and purging markets of exuberance. Crypto markets experienced one of the most brutal leverage sprints, with more than $1.5 billion in bullish bets liquidated on Friday and Saturday.

“The market is much healthier now,” said Vetle Lunde, senior market analyst at K33 Research. “Both open interest and funding rates are significantly lower, reducing the likelihood of subsequent liquidations.”

“This, combined with Bitcoin Holdings stock trading above $60,000, is a strong signal,” Lunde added.

These events are reminiscent of last August’s moves, when BTC plunged from $28,000 to nearly $24,000, with liquidations of nearly $1 billion across all digital assets. After experiencing its largest daily drop since the FTX crash, prices lingered in a very dull range for nearly two months until October’s breakout above $30,000 to higher prices.

A typical bull market correction

With BTC retreating 16% from its recent all-time high in March, the current decline is in line with typical declines from previous bull markets.

The bull cycles of 2016-2017 and 2020-2021 both experienced multiple 20%-30% corrections before prices continued to rise. Cryptocurrency analyst On-Chain College said in a post on X: “Few people understand how normal adjustments like these in bull markets occur.”

Despite the current tensions, hedge fund QCP Capital said on Tuesday that it is still seeing continued, large-scale demand for BTC and ETH for long-term maturities through March 2025, suggesting that market participants still expect prices to rise.