Bitcoin news

What awaits the crypt: further fall or rise?


It is not uncommon to find comparisons of parabolic rallies or sales with “shooting stars”. It is almost impossible to accurately determine price extremes, since the market often reaches levels that contradict logic and common sense. That is why many market participants tend to trend trading, since this campaign takes into account market sentiment, and this is a powerful force.

And, of course, sentiment may contradict the fundamental balance of supply and demand.

Therefore, at any moment the price of an asset is justified, since it is at this point that sellers and buyers met. And often the problems of market participants begin with the assumption that the price is incorrect.

Emotions invariably lead to this conclusion, since this is a psychological reaction based on feelings. I suffered the heaviest losses (as I learned the most valuable lessons) precisely at those moments when I allowed emotions to get in the way of understanding that my only friend is a trend.

I grew up as a trader and investor when I eliminated the emotional reaction to market dynamics from the equation. As a result, I began to follow the trend better.

In 2020, the cryptocurrency market entered one of the most aggressive “bullish” phases I have seen. Bitcoin rose to more than $65,500 per token, and ether broke the $4,400 mark; many other currencies demonstrated similar rallies, of which there are almost 11,000.

In April and May, the combined market capitalization of this asset class peaked at more than $2.4 trillion, but gravity had its say. After a two-fold correction, BTC and ETH went into a sideways trend near recent lows.

Cryptocurrencies have fallen into hibernation

Since mid-April, bitcoin has not pleased its “followers”. On June 22, the July futures price fell to $ 28,840, after which it consolidated (continuing to show a rather “bearish” character).

As the daily chart shows, since June 22, bitcoin’s trading range has been limited to $28,840 and $36,650. Last week, the currency finished just below the middle of this channel.

Ethereum – daily timeframe Ethereum – daily timeframe

During the same period, ether futures traded between $1,710.75 and $2,420.75. Having settled on July 16 at around 1,940 dollars, the currency was also below the middle of its range.

In fact, the two leading cryptocurrencies, which account for 63.2% of the market capitalization of the entire asset class, have fallen into hibernation near recent lows.

Consolidation is a normal phenomenon

The incredible April-May rallies were extremely volatile. Many market participants knew about this, but the idea of jumping off a speeding train scared them.

The sell-off of recent weeks, which cost bitcoin and ether half of the capitalization, can become a very positive phenomenon. Market participants need time to digest aggressive price movements.

While some continue to draw parallels with the “tulip fever” of the 16th century, the situation on the cryptocurrency market is radically different. The new asset class reflects a decline in confidence in central banks and governments in controlling the money supply. Digital currencies are based on libertarian psychology, and the limited issue of tokens is a statement that supporters of the free market seek austerity and natural price formation at the intersection of supply and demand.

Yes, regulators constantly talk about the potential for unfair use of cryptocurrencies, which help to hide from tax inspections and prosecutor’s supervision, but supporters of currencies turn to them in order to preserve capital, not trusting governments and supranational bodies that manipulate the money supply as part of the political agenda.

Strengthening digital assets is an ideological wave designed to change the status quo in the global financial system. In many ways, the evolution of cryptocurrencies is the beginning of an economic revolution that has been brewing for years (if not decades).

Consolidation at the lower end of the range can be dangerous

From the point of view of technical analysis, consolidation at the lower limit of the trading range does not bode well for the asset. Bitcoin and ether have not yet been able to fight off the lows of the end of June.

Time will tell whether the momentum for further sell-off is being formed within the consolidation, or whether a rally is preparing for new highs. In any case, the price movement will be based solely on market sentiment.

The ratio of volumes of long and short positions will determine the fate of currencies. We are still hearing forecasts of bitcoin’s growth to $100,000 already in 2021. Others say that currencies are on the way to complete depreciation.

There is also a growing number of those who reject the current status quo of the financial system, which means that this asset class remains at the initial stage of development. High volatility inevitably follows from the concept of liquidity. As of July 16, Apple’s (NASDAQ:AAPL) market capitalization was $2.478 trillion, while all 10,933 digital currencies were valued at $1.306 trillion.

Arguments in favor of a new rally

As the events of recent years show, bitcoin and ether tend to update the highs against the background of any external events. A few examples: bitcoin broke the $20,000 mark at the end of 2017, when CME launched futures trading on it and provided the cryptocurrency with a new trading platform that increased its popularity. The ether took off in February 2021, when CME introduced a similar futures contract.

Support from reputable companies also played a role. In late 2020/early 2021, Square (NYSE:SQ) and Tesla (NASDAQ:TSLA) invested in bitcoin. Tesla went even further and announced its readiness to accept BTC as a payment tool (although later abandoned this concept due to the carbon footprint of miners).

The most convincing argument is the growing popularity of cryptocurrencies as a means of exchange. Square is working on the issue of trust storage, which can also contribute to their popularization.

The launch of derivatives such as ETFs and ETNs will increase liquidity and lead to higher prices. Meanwhile, increasing price pressures, political turmoil and growing distrust of governments will increase demand.

The higher the prices rise, the more active the speculators. Greed is a powerful driver of bull markets.

Prerequisites for further sale

There are many problems in the way of cryptocurrencies. State regulation is one of the main ones.

Officials hide behind theses about the threat from cryptocurrencies, but in fact the main task is to maintain control over the money supply. The government retains power by issuing and controlling legal tender. The transfer of this function to the free market deprives them of power. Regulators are likely to continue to focus on tightening supervision and ensuring transparency to maintain control over wallets.

Storage and security are also among the concerns. Until every user is convinced of the security of his investments, cryptocurrencies will continue to remain a niche product.

Elon Musk also omtetil the carbon footprint of miners. Widespread recognition is impossible without a more environmentally friendly emission mechanism. These and other problems continue to support the scenario of the market sliding to new lows.

The disputes will not subside in months and years. Personally, I think that a split awaits us: on the one hand, traditional cryptocurrencies will remain, and on the other, digital versions of fiat money (as well as stablecoins).

The parabolic rally ended with a long overdue correction and now prices are near recent lows.

Soon we will find out who will prevail in the protracted confrontation. I believe that the trend is your best friend, and as of July 19, it is directed downwards.