According to Timothy Peterson, author of Metcalfe’s Law as a Model for Bitcoin Value, the crypto industry could be on the brink of another bear market.
This analysis comes as the US Federal Reserve maintains its cautious stance on interest rates despite persisting economic uncertainties.
Analyst Explains How a Bitcoin Bear Market Could Unfold
In his recent analysis, shared on X (formerly Twitter), Peterson warned that the market is currently overvalued. This, he says, makes it vulnerable to a downturn.
While such a decline needs a trigger, he suggests that the Fed’s decision to keep interest rates steady could be enough to set it off.
“It’s time to talk about the next bear market. There’s no reason to think it couldn’t happen now. The valuation justifies it. What it needs is a trigger. I think that trigger may be as simple as the Fed not cutting rates at all this year,” wrote Peterson.
Peterson’s analysis draws parallels between past market downturns and current conditions. Using the NASDAQ as a reference point, he estimates that a bear market could last anywhere from 7 to 14 months.
Given that the NASDAQ is currently 28% overvalued, he anticipates a decline of about 17%, bringing the index down to 15,000.
Applying these projections to Bitcoin, Peterson expects a roughly 33% drop, pushing Bitcoin’s price down to around $57,000.
“Multiply by 1.9. 17% drop in NASDAQ = 33% drop in BTC -> $57k,” Peterson added.
However, he notes that opportunistic investors could step in early. Such an intervention could prevent the Bitcoin price from falling that low, potentially finding support around $71,000.
This aligns with a recent analysis from Arthur Hayes. As BeInCrypto reported, the BitMex founder claimed Bitcoin could slump to $70,000 before a potential rebound.
Analysts also highlighted Bitcoin’s air gap below $93,198, with little to no significant support until around the $70,000 range.
Fed’s Role in the Market Downturn
About a month ago, Fed Chair Jerome Powell said that the central bank is in no rush to cut interest rates. He reiterated these remarks during his speech last week.
Speaking at a policy forum in New York, Powell emphasized the need for patience.
“We do not need to be in a hurry, and are well positioned to wait for greater clarity,” Powell stated.
Powell’s remarks come amid economic uncertainty fueled by President Donald Trump’s policy changes in trade, immigration, fiscal policy, and regulation. With inflation hovering around 2.5%, the Fed is focused on addressing these challenges cautiously.
Despite market expectations for rate cuts this year, Powell has made it clear that the Fed will wait and see before adjusting monetary policy.
Adding to concerns about an impending Fed-inspired downturn, Bitcoin recently dropped following the Fed’s warning of a possible recession.
The Fed projected a 2.8% decline in GDP for the first quarter (Q1) of 2025, triggering fears of economic instability. This had influenced investor sentiment negatively.
Despite these warnings, Peterson remains unconvinced that a full-fledged bear market is imminent. He argues that current market conditions are not as euphoric as those of previous bubbles.
Also, the analyst explains that bearish sentiment among investors could indicate a long-term buying opportunity rather than a sell signal.
BeInCrypto data shows Bitcoin was trading for $85,384 at the time of reporting, down 12% in the past month.
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