Cryptocurrencies Are In A Bloodbath But Bullish Case Remains
Luis Aureliano | Oct 23, 2018 10:25AM ET
The last few weeks have been particularly frustrating for the global cryptocurrency market as a number of negative and pessimistic news pieces hit. To start with, a report from Juniper Research dubbed “The Looming Threat of China ” observed that Beijing has enough Bitcoin hashpower to threaten the integrity of the cryptocurrency.
The October 2018 World Economic Outlook published this month by the IMF suggests that traditional financial institutions, governments, and central banks might ramp up their attacks on the cryptocurrency markets. The IMF has warned that the seemingly unchecked growth of the cryptocurrency asset class could trigger "new vulnerabilities in the international financial system."
h3 The Decline of the Cryptocurrency Market in Numbers/h3
The scatterplot below shows the state of the general cryptocurrency market at the time of writing. As you can see, Bitcoin is down 0.21% to $6,535; Ethereum is down 1.37% to $205.02, Ripple has lost 1.85% to $0.45, Litecoin is down 1.89%, and EOS is down 0.13%. In fact, more than 70% of the top 100 cryptocurrencies by market cap are in the red.
Contrary to the popular narrative in crypto media reports, the decline in the price of Bitcoin and in the general cryptocurrency market didn’t just happen overnight. The volatility of cryptocurrencies is rooted in hype; nonetheless, the reports mentioned here weren't enough to topple the market to the point it's at today.
An objective introspective look into the markets suggests that the decline can be traced to the aftereffects of a false breakout that happened in Bitcoin about two months ago (see chart below). On July 25, Bitcoin experienced an unexpected breakout that saw it going above the short-term resistance point at $8421.
Unfortunately, the market was unable to build up the momentum required to sustain the breakout and it didn’t take long for BTC to plummet. Over the last two months, Bitcoin has lost about 25% of its market value with the decline ultimately causing a general slump in the crypto market on the weekend of October 13. Bitcoin’s 25% decline is relatively small in relation to the 51% decline in Ethereum and 47% decline in Litecoin in the same period.
h3 Is This the Official Beginning of a Bear Market for Cryptocurrencies?/h3
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Bitcoin is the beacon that signals how other altcoins in the markets fare; hence, short-term and long-term predictions of the general cryptocurrency market are always grounded in market analysis for Bitcoin. The price of Bitcoin has critical support around $5629 – that was the lowest trading price of Bitcoin before it began it’s rally in November 2017 – the rally that saw Bitcoin rising to make its historic $20,000 high (see chart below).
It is unlikely that Bitcoin will suffer the doom and gloom that naysayers are predicting. Nonetheless, a decline from the current $6300 trading price to $5600 suggests a potential 11% drop in price. Hence, if Bitcoin is on the way to test support; there might still be a short-term bullish outlook for the next several weeks.
h3 The Long-Term Outlook is Bullish/h3
For the long-term, the entire cryptocurrency market is still strategically positioned to enjoy bullish tailwinds over the next couple of years. A bull market typically refers to a market scenario in which prices are rising with increasingly higher resistance and support points. Bitcoin has been in a bull market since 2009 – of course, there’s always a gut-wrenching decline after each rally but every new wave of the rally sends its price on a predominantly northward trend.
The cryptocurrency market still records significant uptrends in comparison to other types of assets. The explosion in ICOs and the attendant hype was responsible for much of the 2017 rally. However, in the year-to-date period, the hype has proven incapable of stemming the decline in the market so, moving forward, it is unlikely that hype will be the sole factor driving up the price of cryptocurrencies.
A bigger force that could possibly sustain the long-term bullish outlook for cryptocurrencies is the mass-market adoption of Blockchain technology. As the applications of Blockchain technology continue their foray into mainstream usage, the market will start to see increase transactional use of cryptocurrencies beyond the current speculative purchases. An increase in the transactional use of cryptocurrencies will, in turn, engender increased demand and longer holding cycles which could in turn birth a steady and sustained growth in the market.
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