Let’s call it as it is: the crypto market has been flat out disappointing over the past six months. Ever since March the crypto market has been in a prolonged price correction that it seemingly can’t break out of.

Just take a look at the chart of Bitcoin (BTC) below and you can see multiple attempts to break through downward resistance that tapped out before a true breakout was achieved. It has been a few months of lower lows and lower highs. The real question ahead is will that change in the near future?

While it’s not unusual for the crypto market to experience seasonal dips and corrections, this particular downturn has persisted longer than many anticipated. A combination of regular market seasonality, macroeconomic challenges, and external financial events have all played a role in stifling the momentum that many crypto investors have been hoping for.

The Impact of Seasonality and Macro Weakness

Historically, the crypto market has been known for its cyclical nature, with periods of rapid growth often followed by significant corrections. Of course, you already know about the larger 4-year crypto cycle that rotates between bull and bear markets. However, there are also smaller cycles within both bull and bear markets where momentum ebbs and flows.

These corrections, while uncomfortable, are part of the market’s natural tides, often acting as a cooling-off period before the next phase of growth. However, the current correction has extended beyond the typical duration, leaving many investors questioning when the market will find its footing again.

One of the key factors contributing to the extended correction has been broader macroeconomic weakness. In particular, the Bank of Japan’s recent decision to raise interest rates to 0.25% in early August sent shockwaves through global markets.

Although the increase was relatively modest, it would have marked Japan’s first rate hike in a long time and signaled the possibility of further tightening in the future. This unexpected move contributed to heightened volatility across all markets, including cryptocurrencies, which tend to react strongly to shifts in global economic policy. The Bank of Japan has now seemingly called off the plans to hike, however the situation is still dicey.

Crypto’s Correlation with Traditional Markets

Cryptocurrencies have often been seen as a hedge against traditional financial systems, but recent trends have shown a growing correlation between crypto and the stock market. This was evident on August 5th, when global stock markets, including the S&P 500, took a sharp dive following the news out of Japan. Cryptocurrencies, already struggling to gain positive momentum, were further pressured by the sudden downturn in traditional markets.

However, in the weeks that followed, traditional markets managed to stage a strong recovery, with the stock market up approximately 7% since that initial drop. Some of the minor cryptocurrencies were also able to bounce, however many altcoins are now still trading for lower prices than they were at the end of July.

The crypto market has struggled to break free from its months-long correction. This disparity highlights the complex relationship between crypto and traditional assets, where positive momentum in one market doesn’t always translate to the other.

A Brighter Outlook for the Months Ahead

While the current situation may seem bleak, there are reasons to be cautiously optimistic about the months ahead. Patience will be key as the crypto market works through its current challenges. The stabilization of traditional markets, coupled with the potential for rate cuts in the United States, could provide the much-needed liquidity and investor confidence that the crypto market has been lacking.

Moreover, as we move past the summer months, we enter a period historically associated with positive crypto seasonality. The final quarter of the year has often been a time of renewed interest and upward momentum in the crypto space. If traditional markets continue to stabilize and macroeconomic conditions improve, we could see a return to the growth patterns that have defined previous bull cycles.

While the crypto market has been trapped in a prolonged correction, the underlying factors driving this inactivity are beginning to show signs of improvement. As patience is exercised and external conditions become more favorable, the market may finally be poised for a positive climb, bringing renewed optimism to investors who have weathered the storm.

Editor’s Note: Cryptocurrency has been the best returning asset class of the last decade and is know for its parabolic bull markets. It is also a key to a truly diversified portfolio and one of the best hedges against the potential risks that lie ahead in markets. But you need to act now before institutions gobble it all up.

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