Bitcoin Bear Market Emerges? Analyst Warns of Possible Recession Due to Fed Stance
According to Timothy Peterson, author of the Metcalfe’s Law model for Bitcoin’s value, the cryptocurrency market may be preparing for a new bear market.
The warning comes as the US Federal Reserve (Fed) maintains a cautious stance on interest rates, despite lingering economic uncertainties.
Bitcoin Bear Market Analysis
In his latest analysis shared on X (formerly Twitter), Peterson argues that the market is overvalued, making it vulnerable to shocks.
While there is no clear sign of a downturn, he believes that the Fed’s decision to hold rates steady rather than cut them could be the trigger for a bear market.
“It’s time to talk about the next bear market. There’s no reason to think it can’t happen now. The current market valuation justifies it. All it needs is a trigger, and I think the Fed not cutting rates this year could be that trigger,” Peterson wrote.
Similarities to past market downturns
Peterson compared the current situation to past market downturns, using the NASDAQ as a reference. He estimated that the Bitcoin bear market could last between seven and 14 months.
According to his analysis, the NASDAQ is overvalued by 28%, and a decline of around 17% could push the index down to 15,000.
If the same were applied to Bitcoin, Peterson predicted a decline of as much as 33%, taking the price of Bitcoin to around $57,000.
“The correlation between NASDAQ and Bitcoin is around 1.9. If NASDAQ falls 17%, Bitcoin could fall 33% to $57,000,” he added.
Potential Support Levels for Bitcoin
Despite the bearish forecast, Peterson believes that opportunistic investors could step in and prevent Bitcoin from falling further. He predicts that support could emerge around $71,000.
This analysis is in line with a recent report from Arthur Hayes, founder of BitMex. Hayes predicted that Bitcoin could fall to $70,000 before a potential recovery.
Analysts have also pointed to Bitcoin’s price gap below $93,198, noting that there is little significant support until Bitcoin reaches around $70,000.
Fed's Stance and Market Impact
About a month ago, Fed Chairman Jerome Powell stressed that the central bank was in no rush to cut interest rates. He reiterated that view in a recent speech.
Speaking at a policy forum in New York, Powell said: "We are in no rush, and we are well-positioned to wait for more clarity."
Powell's comments came amid economic uncertainty, related to President Donald Trump's policy changes on trade, immigration, and fiscal policy. Although inflation is currently hovering around 2.5%, the Fed remains cautious about adjusting monetary policy.
Despite investor expectations for a rate cut this year, Powell said the Fed will wait before making any adjustments to interest rates.
Recession Forecast
The Fed has also forecast a 2.8% GDP contraction in the first quarter of 2025, raising fears of a recession. This has negatively impacted investor sentiment, especially in the cryptocurrency market.
However, Peterson still does not believe that an official bear market is underway. He argues that the current state of the market is not as euphoric as previous bubbles, and that bearish sentiment could open up long-term buying opportunities for investors.
