The strange state of Bitcoin & crypto

Every day it’s the same. If you check the prices of the top 10 coins, they always perform similarly. Sure, recently Ripple has been stronger than BTC, and ETH has weakened. But within bitcoin itself, there are very few surprises. The algorithms are turned on, and wherever bitcoin moves, so do the other coins. This has resulted in retail interest in crypto being destroyed:

In the past I’ve written about bitcoin dominance, and how increasing dominance is a ‘risk off’ market signal. Well, today we stand a little over 50% dominance in the market. That is to say, of the entire crypto ‘market cap’ more than half is invested in bitcoin.

If you’re a trader in the bitcoin market, it’s horrible at the moment. Price action is filled with long periods of small movement, interspersed with moments of extreme volatility and sheer terror. If we contrast this with the ‘bubble phase’ on the way up (Nov-Jan 2017), we had similar huge volatility, but there was much more speculation at all hours of the day. Major price movements weren’t limited to huge price spikes. They also occurred with trending price movements, price reversals and support/resistance bounces/breakouts. In this article I’m going to briefly explore why price action has changed, whats keeping bitcoin from growing further and why, even though things are bad today, the future could still be bright.

Well, the good news is the price of bitcoin has been in a range for the past few months. Somewhere between $6000 and 8000. This is genuinely good news. After a ‘market crash’ stability is very important. Price stability helps alleviate fear. The hope here is that gradually traders and speculators will come back to the market, they will ‘trade the range’ and try to buy btc when the price is closer to 6000, and maybe try to sell when the price is higher than 8000. As more and more traders come back to the market, it adds real liquidity. The market begins to absorb more opinions, and price action comes back. In even simpler terms: more opinions makes the market more lively, eventful and yields more opportunities. Once the price begins to behave in a more two-way fashion, these insane price spikes will hopefully become rarer and rarer. This is the basis for genuine, real and stable price growth.

The bad news is that so far, we are still seeing these suicidal price spikes!

The famous ‘Bart Simpson’ pattern, synonymous with extreme price spikes

These price spikes tell me that there are still very few major players in the bitcoin market. Large price spikes only happen when there aren’t enough conflicting opinions. Now, I don’t want to delve too deeply into trading theory, but in a ‘healthy’ market, when a price moves down or up sharply, someone should be waiting on the sidelines to buy or sell at the new, more attractive price. Because bitcoin still has a distribution problem, when a big player sells or buys, it leads to these price spikes.

Now, some of you will be claiming that these price spikes are due to manipulation. “They smashed the price of bitcoin just low enough to trigger my stop! It’s criminal!” I hear you say. Well, I can’t agree or disagree with you because I don’t have any evidence. Suffice to say: If it walks like a duck and quacks like a duck…It’s a duck!

So then, let’s say the prices are manipulated to hurt small time traders. This is simply bad for bitcoin. As I laid out above, this sort of price movement discourages market participation. But then, if this is true, it means that long term, it is detrimental to bitcoin price growth.

Therefore, the biggest bitcoin whales should determine that it’s in their interest to stop these price spike movements. The manipulators who are bullying the market/causing the spikes are surely making quick profits, but they are damaging the overall profile of bitcoin while doing so. Ultimately it will lead to a lowering of bitcoin prices as more and more people get a sour taste in their mouth after speculating.

Arguably, these big investors have been buying Bitcoin when it’s “cheap”. I mean, we still haven’t seen any sub 6000$ prices, so the invisible buying hand of whales and investors seems to be protecting this price level. That being said, at the moment it seems like if we are to break out of the 6–8K range, it’s more likely to occur on the downside. Whether this turns into another market rout or is a brief opportunity to buy at even cheaper levels, remains to be seen.

Tether remains a real problem. I’m not the only one who is talking about this, and I’m far from the flag bearer of this movement. But I subscribe to Bitfinex’ed on twitter and his writings on the matter are always interesting and worthy of consideration. If you don’t know about the tether problem, please do some research and understand why it is a huge threat to bitcoin. It could even be seen as a systemic threat, and could effectively deal a coup-de-grace to the concept of crypto currencies for the vast majority of market participants.

Without sounding like a broken record, tether and the tether problem stops serious, institutional level investors from allocating funds into bitcoin. As long as the tether problem remains hanging around the neck of bitcoin, it crushes the growth outlook, like a heavy albatross, stopping growth and mass adoption.

I’m not going to further sidetrack this article, but please, learn and contemplate why tether is the worst development in crypto to date. It’s far worse than the bitconnect scam, or any exchange security breach, because it completely destroys so much of what we know of crypto today!

So here we are. The markets are pretty dead at the moment, (excepting the recent volatility in Ripple), but if you’ve read my article, it’s not all bad. In terms of price, overall, things seem stable! If we can solve the tether problem, then solve the market manipulation problem, bitcoin can stands to grow further. And I mean real growth, not bubble mania speculation growth.

The problems are clear. The solutions, less so. But let’s not be so hard on bitcoin. After all, crypto as a concept is still young, and I’m confident that solutions to these problems can be found and implemented. They say you are most critical of the things you love most. So I’ll end by saying that although the state of crypto might be lacking today, as more and more people learn about these issues, I’m sure things will improve and one day it could be amazing!

Veteran futures trader, markets and finance enthusiast - I like to speculate and think aloud about whatever I find interesting, but usually finance and trading.

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