The market of cryptocurrencies is not only alive but it also soars rapidly as we have proven before using political and economical arguments. In this part of the text we are going to take a close look at those factors that have influenced the financial crisis of the 2018 and the market recovery in early 2019.
Winter-spring: Chicago futures and the market congestion
The growth of the cryptocurrencies market in the end of 2017 was mostly stimulated by the the beginning of bitcoin-futures bidding on CME and CBOE. The stir was generally caused by ideological background. As we have said before the fact that the bidding had started represented the acception of the cryptocurrencies market from the American finacial establishement and even by the government which hadn’t allowed the cryptocurrencies to be introduced in the tradicional exchange before. In the december 2017 the SEC leadership had to announce that bitcoin was something to be reckoned with.
But it was exactly the bidding start in the middle of december that had triggered the market decline. And this time the background was purely economical: there was an inequality between BTC traders and their customers. The BTC supply was stable and massive due to the mining companies abundance. Miner was obliged to cash some of his cryptocurrencies for both profit consolidation and electricity bills as well as other business expences. As for the BTC demand, it wasn’t quite optimistic in the december 2017. There was an understanding between qualified Chicago financiers that bitcoin was overvalued and it was dangerous to buy it at the current exchange rate. It was much easier to force miners to lower the price because otherwise they would have nowhere else to go.
Many analysts consider this factor to lead to the BTC, and subsequently other cruptocurrencies, exchange rate reduction. And when the price lowering started, miners bedan negotiating under-pricing contracts to avoid a complete business collapse. It contributed to top-down trend for a few month.
Bitcion-futures weren’t of course the single recession factor. As it was in 2013 - the market got overburdened. The bubble was certain to burst. Futures played the role of a trigger and also largely determined the speed of recession - the speed of miners making new concessions.
Summer-autumn: supply redunction and new investor interest
Although the BTC and other cryptocurrencies supply had been sustainable during winter-spring period it became clear in summer that mining would soon get unfavourable. In countries where electricity prices had been relatively high the most profitable currencies from whattomine.org list began moving to recoupment limit. It was harder each time to continue making concessions. Some of the companies decided to suspend activities instead of working at a sacrifice.
Many of individual investors stopped selling currencies that had went down in value. Their logic was quite simple. Imagine you had bought a BTC for $15-20 thousand and the price fell to the level of $6-7 thousand. And you have a choice: to sell it for cheap admitting financial loses or to wait for the market recovery. Most of the investors chose the second variant.
As the result the supply has decreased and the fall slowd down. In September the BTC exchange rate became stable in the area of $6500. The demand started to raise from three types of independant investors at once.
⦁ Those investors who was familiar to the cryptocurrencies market and those had decided that the lower point of the fall was close(especially, in September)
⦁ New investors - citizens of countries with troubled economics and high level of inflation such as Turkey, Venezuela and Argentina. The fear of invlation in crisis situations before made citizens of many countries buy dollars and euros. This time investments in cryptocurrencies seemed to them more prospective. The interest turned out to be massive. For example, an August survey showed that the number of cryptocurrencies holders in Turkey is twice as high as in Europe: 18% compared to 9%.
⦁ Huge institutional investors from the USA and the main global economies - pension funds and other big players who had been avoiding crypto asserts owning to volatility and undetermined legislative status. Gradually they realised the promise. Politic climat allevation about which we have said before was also an important factor.
The first and the second group had shown an immediate activity while the third had taken a wait-and-see attitude with the clear intention to invest significant amounts of money it the future. The grown investor interest was keeping the exchange rate sustainable for the whole autumn. The BTC exchange rate had represented stability that was even higher than US stock market stability. For some time it became a defencive asset like gold(a role pledged by the analytics much time before).
Despine all this, the next fall took place in November 2018.
November-april: reaching the bottom and starting to recover
New crisis started on 14 of November - dramatically and unexpectedly. It took an hour for the BTC exchange rate to drop in $800. It the following days the market dropped even far. To the end of November BTC and the market in general were down a third: BTC - from 6300$ to $4000, the market capitalization - from $210 to $130 billion.
There are two main versions explaining what had happened that it fact don’t contradict each other.
Fundamental and obvious version. Huge financial comunities that had noticed the prospective of BTC in summer-autumn period decided to buy it for as cheap as it was possible. A question about lowering a price is specific. The fact is that they had such interest. This version doesent explain the sharpness of the fall but it does explain the actual fact of the fall and it’s seriousness.
Complicated and conspirological version. It was cheating scandal at SK exchange that had caused the fall. The exchange was bought by the Singapour company BK Global Consortium. In September-October the companny attempted to make an exchange the front-runner by promotion, supporting high volume of trading ect. In a short time the trading volume had increased more than a fourfold. But in the end of November Crypto Exchange Ranks (CER) accused the company of cheating. It 3 days the value of Korean won in global trading had went to pot. It 3 days more the fall began. This version explains the dramatic speed of the fall but it’s not nesseserely to believe it. There might be another short-term reason of the fall. It is important that many of powers were interested in it.
In the following 4 month the maket wasn’t able to recover from this strike. In December it dropped even more, in January it was “laying on the bottom”, it February it slowly started to recover but only in April it raised for real. Literally in an hour the exchange rate had grown in $800 and again it was followed by a gradual growth. In less than a month the market capitalisation had raised from $140 to $180 billion and this trend presists now.
So what happened in early April and why this growth and the November fall seem to have almost the same scenario? Ironically, they have the similar reason: Those inwestors who wanted the fall to buy BTC later became interested interested in its rise.
In December 2018 many experts had already been talking about the cryptocurrency owersold and unparalleled deficit of traders. While in November investors were ready to give into fear to minimise their losses? In December their businesses were too damaged to worsen it. The “hodl”(from “hold”) tactic turned out to be the single reasonable solution. Further rates reduction was rather unlikely(even if someone had an interest in it). Investors steadily realized that the time for purchase had come. Thus in February the rates had increased. It became clear by the end of March that new fall is almost nobody’s interest. Everyone wants to bay and waits for a rise. And just a small trigger is enough in case with such sentiment.
Who was to pull this trigger is not that important. Probably it was someone from the big players, maybe it was a large exchange again. Anyway, many people were looking forward to it.
Conclusion
Telling you the truth the cycle was planned in March when the rise had just started and it wasn’t clear if cryptocurrensy was dead or alive. Here comes the title of the article. But today there is no doughts the lift of the trading volume and assets value is visible. Nevertheless we gave you some extra information that can’t be get from those charts.
Cryptocurrencies are becoming a vital part of the economy. They were mainly a speculative asset in the past but today it’s more of a currency. They were mainly for market enthusiasts in the past but today many countries has accepted them. Many people considered them as a short-term hype feature but today it’s obvious that digital assets have a sirious basis and rapidly gain popylarity in spite of any difficulties.
The question about cryptocurrency market is solved.What exaclty will it look like? Which currencies are going to prevail? Which are going to burst and how many of them will remain? How is going to change the global economy and policy? Many of the answers we will know in the next few years.
In the next publication we will try to analise what $5200 will become if we invest it in BTC now. We will show you that even without any rollercoaster it may turn into $300000 in 5 years.
Analytical department, Trident company, Victor Argonov, Candidate of Physical and Mathematical Sciences.
Source:
http://trident-germes.com/category/article/