Writing’s on the Wall
Introduction
First off, I am not an expert. I do not know what’s going to happen. I am not making predictions, this is simply a summary of my own analysis and opinions. Do not make decisions based on this alone, think things through yourself, the responsibility is yours. And always, always manage risk. I’ve linked to other material for those wanting to dive deeper.
The crypto and bitcoin markets are far less popular than they have been in the past. Most retail investors have fled since the beginning of the bear market in early 2018. But is crypto dead, is it going to zero? Or is it perhaps all part of the market cycle.
TL;DR: Skip to the conclusion.
Market Cycles
When entering into the crypto space, whether it be investing or trading, it is vital to understand the fundamentals of market cycles. Simply put, assets like bitcoin have different phases in the market. These phases should be understood and one should be aware of what phase the market is currently in; without this knowledge, it is difficult for investors to make money.
It is important to note that at the end of the full cycle, it all starts again. The worst thing an investor can do is buy during the “Euphoria” stage and sell during the “Anger” or “Depression” phase. And yet this is what so many do. Why? Market psychology, the power of FOMO and FEAR. Not to be underestimated.
For further learning on the market cycles, have a read through this and this. This video by DataDash is also useful.
Where Are We Now
It’s my belief we are in the later stages of the bear market. Probably in the depression phase. Why do I believe that?
- Bitcoin has had a 70% retrace from its $20,000 high.
- Bitcoin has been moving mostly sideways for some time now — this might be the sign of accumulation.
- $6,000 is still showing support for Bitcoin, if it breaks cleanly then it would probably become a very strong resistance. (Support becomes resistance after breaking and as 6000 has been touched so often, it’s become a significant level). I think it would be in the market makers interest to keep us above that — assuming they don’t want a much longer bear market.
- Altcoins look like they have bottomed out, many having had a full retracement against their Bitcoin pairs.
- The fundamentals of Bitcoin have never looked better (more on this later).
- Bitcoin is entering its “long term bull channel” at the same time as reaching the apex of the “triangle”. It’s reaching decision time.
Long Term Bull Channel
Important to note that the above doesn’t include price or date predictions, simply the overall trend. I don’t know if this pattern will continue. I am not sure how reliable log charts are and Bitcoin doesn’t have a whole lot of price history to go on. Take this chart with a grain of salt, my bias comes mostly from the fundamentals. It does look like there might be something there and I believe Bitcoin still has much more upside. Why? Bitcoin has some interesting properties which make it unlike any traditional asset.
- Immutable store of value which no government, bank or institution can control.
- Finite supply, not inflationary. Scarcity = value.
- Can send Bitcoin to anyone, anywhere, quickly.
Additionally to this, there are people making a ridiculous amount of money from Bitcoin. The market makers are the ones who are heavily buying the bottom and selling the top. If you were a blood thirsty market maker with the ability to help move the Bitcoin price and you were intent on making more money, what would you do? If it was me…
- Shake out as many traders / investors as I can.
- Buy lots of Bitcoin as cheap as possible.
- Restore confidence in the market, everything looks bullish again so retail jumps back in.
- Ride it as high as possible, influence media to create more FOMO in retail investors who know nothing about the market.
- Sell to those retail investors who are buying the top.
- Let it crash back down, rinse and repeat.
Fundamentals
The overall fundamentals of crypto look very strong right now. Price might not be doing much but the infrastructure is being built.
Bakkt
ICE (Intercontinental Exchange) owners of the New York Stock Exchange and many other platforms announced in August that they are launching a new company, Bakkt, which is intended to leverage Microsoft cloud solutions to create an open and regulated, global ecosystem for digital assets.
They’ve got some big partnerships. From the Starbucks blog -
“The new company is working with a marquee group of organizations including BCG, Microsoft, Starbucks, and others, to create an integrated platform that enables consumers and institutions to buy, sell, store and spend digital assets on a seamless global network.”
The CEO of Bakkt, Kelly Loeffler, has said -
“The digital market is fragmented like the energy market in the early 2000s. ICE was the pioneer attracting more and more institutions to trade energy, which is what created today’s liquid market.”
“We’re about to see a revolution on the same scale in cryptocurrencies.”
It’s important to note that this particular exchange Bakkt is building will be settled in Bitcoin.
Since it means the actual buying and selling of Bitcoin (rather than simply cash settled contracts), it will impact the supply of Bitcoin (unlike other futures exchanges). Bakkt is planning to launch its futures exchange this November.
Fidelity
Fidelity is the fourth largest asset manager with $7.2 trillion in assets under administration as of October 2018. They announced they have been mining Bitcoin since 2015 and they are now launching Fidelity Digital Asset Services. The firm explained -
“The company will offer enterprise-quality custody and trade execution services for digital assets, commonly referred to as cryptocurrencies, to sophisticated institutional investors such as hedge funds, family offices and market intermediaries.”
Circle
Circle is a peer-to-peer payments company which is backed by financial firms such as Goldman Sachs. They recently bought the Poloniex crypto exchange in February 2018.
Nasdaq
Bill Dague, Nasdaq’s head of alternative data -
“Given the abundance of interest, we are exploring cryptocurrency related datasets. Whether or not we launch a crypto-related product remains to be seen.”
Others
Alistair Milne, the chief information officer at Altana Digital Currency Fund, stated sarcastically -
“Goldman, Citibank, ICE. Now Morgan Stanley. All launching Bitcoin products and services because there’s no institutional demand. Institutional money took the hedge fund industry from $300 billion to $6 trillion.”
The implication is that banks are seeing solid demand from institutions however the institutions don’t have the ideal infrastructure to deal with cryptocurrencies (yet). Seems like Fidelity and Coinbase are getting the ball rolling.
Regulatory Stance
Whilst regulation of digital assets has only just begun, so far, things look positive. It’s clear that most large regulatory bodies are building regulations and they seem to be doing it with a fairly open mind. The fact they are taking it seriously is a positive in itself, it helps legitimise the space, as well as helping remove some of the nonsense within crypto. Up until now it’s been a bit of treacherous space, with scams and other pitfalls posing a danger to those new and naive to the crypto world.
ETFs
The ETF situation is basically that there are a number of applications being reviewed, most being rejected and those that are considered by many to have the best chance of success (VanEck/SolidX Bitcoin Trust ETF) keep having the decision delayed by the SEC.
It is likely the SEC delays their decision as long as they possibly can (27 February 2019 is the final deadline) as they believe the space is not mature enough yet with price manipulation and lack of proper regulation. I can’t help but think there’s a reason they are delaying the decision rather than flat-out rejecting it. Is it too far fetched to speculate that once the proper regulations are in place and better exchange infrastructures are built, a Bitcoin ETF wouldn’t be too far behind.
What would an ETF mean for Bitcoin? In short, it would mean easier access for traditional investors. Meaning more reach for BTC.
Crypto Advertising
Earlier this year, Facebook and Google made sweeping bans on cryptocurrency ads in response to the ICO scams and the likes. In June, Facebook revised their ban and though still blocking ICO advertisements, pre-approved advertisers will be allowed to post some material.
In September, Google made similar revisions -
“plans to allow regulated crypto exchanges to buy ads in the United States and Japan.”
With cryptocurrency ads opening up again and multiple large corporations launching digital asset exchanges, it’s not difficult to imagine that they might spark another media hype frenzy.
The Bear Case
There is a case to be made for further bearish action.
- The more times a support is tested, the weaker it gets. The $6,000 support level has been tested many times now.
- We’ve been ranging for quite a while and haven’t dropped down into the liquidity pool sitting below $5,800 as a final shakeout.
- The sell offs are stronger than the rallies.
- Rumours of Tether not backing USDT with real USD and Bitfinex being insolvent. If this were true, and came out, confidence in the market would be shaken deeply and we’d likely see the price crash. As of now though, only a rumour and could simply be FUD.
So TA wise, I think it’s pretty even. However, the fundamentals make me lean more bullish.
Conclusion
To me, Bitcoin looks like it may very well be at the end of its bear cycle. That’s not to say we’re definitely out the woods yet, we could see a dip lower to trigger people’s stop losses before climbing up higher. However, I wouldn’t count on it. What I am confident in is that Bitcoin will see new highs at some point in the future.
The institutions are likely to setup these platforms, accumulate at low prices, let the bulls take it up and then use any influence they have over the media to create a hype frenzy so that they can sell to retail buyers who don’t know any better.
Last alt season, January 2018, the two biggest alt exchanges, Binance and Bittrex, had to shut down new user registrations because their servers couldn’t cope. Think about that for a second. The last crazed alt season was cut short because existing infrastructure couldn’t handle it. The new infrastructure will presumably be able to handle more load and they’ll be easier to use, attracting more investors.
Now is the time to pay attention. Be ready.
