Expert Analyst Says “Bitcoin’s Decline is Natural,” Shares What to Expect Next

Ed Engel, an analyst at Compass Point Equity Research, said that the recent sharp declines in the crypto market did not disrupt the long-term trend, but rather represented a typical “deleveraging” seen in every cycle.

Engel noted that Bitcoin is still up over 100% since the beginning of the year, and that volatility is clouding investor behavior in the bigger picture.

Engel noted that Bitcoin has performed exceptionally well over the past few years, noting that, particularly in the late stages of bull markets, investors holding large amounts of the coin for long periods have begun to unwind their positions. He noted that this unwinding has accelerated since July, arguing that it's a natural process that repeats itself in every cycle. He explained that during this period, coins from “sticky” long-term holders are transferred to shorter-term, weaker hands, which then disappear from the market.

Engel noted that despite the market decline, interest in buying at the dip hasn't completely disappeared, adding that institutional inflows into Bitcoin have been strong throughout the year. He noted that while ETF inflows have slowed in the past month, buying continues at both the government and institutional levels. He noted that the Texas government purchased Bitcoin last week, Harvard has taken large positions, and even the Czech National Bank has established a Bitcoin portfolio. “Even though it's lost in volatility,” Engel said, “institutional investors see these levels as opportunities.”

The analyst noted that the “investability” of publicly traded companies holding cryptocurrencies varies by company. According to Engel, Michael Saylor and his management, Strategy (formerly MicroStrategy), have proven their risk management skills over multiple cycles. Engel noted that Saylor was able to develop creative solutions to both sustain the company and raise additional capital on advantageous terms, making this a compelling example.

On the other hand, Engel said that other companies carrying crypto treasure do not have the same trustworthy names, and that many players have entered this field, especially with the inflow of new money, but not all of them have a sustainable strategy or past performance.