Bitcoin’s correction may just be getting started. In fact, the crypto sector as a whole could be facing a severe downtrend reminiscent of 2022.
“I could see us going back to a five handle by the end of the year,” Quinn Thompson, founder of crypto hedge fund Lekker Capital, told CoinDesk in an interview. A “five handle,” i.e. a price between $50,000 and $59,999, would be down substantially from the already shaky current $83,000 level and roughly a 50% decline from bitcoin’s peak just above $109,000 just more than two months ago.
“I don’t think it happens quickly, which is why it would be very painful and shocking to people because nothing about the current market conditions is very volatile, with big liquidations and crashes,” Thompson added. “It’s this sort of different market environment, a slow grind down that is almost more unbearable for people because they’re like, ‘Is it over? Is the bottom in?’”
Thompson, who had been bearish from far higher levels, has repeatedly called the White House’s crypto announcements — be it the Sovereign Wealth Fund or Strategic Bitcoin Reserve, or anything in-between — “nothingburgers” and “sell the news” events. He has also argued that Strategy’s (MSTR) constant bitcoin buys aren’t necessarily bullish for the cryptocurrency, since they seem to be the only significant bid.
Central to Thompson’s thesis is the idea that the Trump administration’s various policies will likely hurt the economy for the next six to nine months.
First, the Department of Government Efficiency (D.O.G.E), in its efforts to reduce the U.S. deficit, is bent on cutting government spending — which has been one of the largest drivers of job growth in recent years. The labour market was already wobbly when the Biden team handed over the reins to Trump, Thompson said, and the new government’s fiscal arm isn’t interested in propping things up anymore.
“People get caught up in the politics of it,” Thompson said. “We can disagree on whether we need the Department of Education or not. But those dollars were being printed and going into people’s pockets, and those people spent them, and went on vacation and to the grocery store. So it was growth positive.”
Elon Musk, the main force behind D.O.G.E, said last week that he was aiming to cut $1 trillion in government spending by the end of May; he also said he wanted to cut 15% of the government’s annual spending, meaning almost $7 trillion.
Even if D.O.G.E fails its stated objective and only manages to cut, say, a hundred billion over the course of four years, the bigger cuts are likely to occur at the beginning of Trump’s term, not the end, Thompson argued. This means that D.O.G.E’s impact on the economy and consumer sentiment is likely to be felt in the coming months, no matter whether the agency actually succeeds or not.
