Mixed Signals Arising. When Moon?


Bitcoin price continues to move side-ways and there isn’t much volume coming into cryptocurrency. There are some catalysts that could potentially kick-start another bull-run, however, uncertainty is an important characteristic of any market; it becomes quite hard to predict the best time-frame to put some fresh cash into cryptocurrency.

My non-professional advise? Don’t try to time the market perfectly. Sure, there’s an underlying risk which is Bitcoin’s price dropping even lower, to around $4500 levels; nonetheless, history also shows us what usually happens during the last quarter of the year, and that is a nice pump in price. Not only in the cryptocurrencies market but namely on traditional assets, commodities and fiat-currencies markets.

How’re Things Looking?

As we can see, there have been some minor gains on some cryptocurrencies such as Tron and IOTA, nonetheless, the general view is a bit depressing. While the broader trends in the segment are still clearly bearish, and odds still favor a larger negative momentum move in the coming weeks, the current quiet market conditions are encouraging, at least form a very short-term standpoint.

The bitcoin volatility index, which tracks the cryptocurrency’s price variance over time using the standard deviation of daily open prices, has declined in the past 30 days, proving the trend in volatility has been steadily declining for much of 2018. Interestingly enough, this trend is somehow attributed to the rise of futures trading. Contrary to popular belief, the introduction of bitcoin futures last December has been accompanied by a decline in large price swings for the digital asset. As historical prices show, when volatility is low it usually means there’s an entry point as prices are moving side-ways; high volatility is commonly associated to both bull and bear runs.

Following the reports from Hacked, “Bitcoin could provide a strong bullish signal in the coming period, should the triangle consolidation pattern in the most valuable coin get broken on the upside, but for now, BTC is still stuck in the formation. The $6500 price level is in the center of attention yet again, as the coin recovered above without testing the support zone near $6275 (…)”. Bitcoin’s value reached a high of $6,648.80 on Bitfinex having gained 1.3% from the previous session. The leading digital currency fluctuated within a $155 range on Thursday.

To better understand price swings and the drivers behind adoption, we should take a quick look at the recent past and try extrapolating what could have been the main catalysts for such increases as we’ve seen throughout December 2017.

Interestingly enough, as we’ll see below, my conclusions are not that surprising. After all, there aren’t that many factors which can promote 100-fold gains.

What Drives Adoption?

The first concept to understand is that prices can only grow in proportion to volume. This is, the more volume we see, the higher the chances of achieving record highs. Secondly, high volumes are typically associated to institutional investors and smart-money in general. Because there are price barriers created by bots and short-sellers, there is an underlying need to see huge quantities of fresh cash pouring into Bitcoin so that those barriers are broken. For instance, when a bull-moment is about to happen we see a bunch of short-sellers getting wrecked, in epic short-squeezes.

Right, the key point here is then to try finding causes for smart-money to come into the market.

Before we dive into those, I would like to spot out there seems to be a biological factor behind adoption, meaning we could try to compare Bitcoin’s macro price trend with bacterial growth. The three phases of bacterial growth, repeatedly sequenced together, mimics the Bitcoin supertrend.

There is a lag phase, during which the bacteria are acclimatizing to the conditions in a Petri dish; an exponential phase, where the bacteria are growing through rapid, exponential multiplication, and phase of stagnation, where the bacteria exhaust the resources in the Petri dish and cannot grow any further. Left in that state, the fourth phase of retardation would then ensue. However, if more resources are provided, say by way of a larger Petri dish, the process continues anew.

The parallel to the Bitcoin super trend is easy to imagine: the more money it goes into Bitcoin, the more price grows, hence the impact a few million dollars can have in the overall marketcap.

The above reasoning, although interesting from a scientific perspective, does not answer the question posed. What could be the drivers for a bullish market? The first, and most obvious one I might add, is regulation; followed by traditional markets’ growth expectations and, finally, the usual hype cycles promoted by media channels.

ETFs

The U.S. Securities and Exchange Commission (SEC) is asking for more comments surrounding a rule change that would deliver the first bitcoin ETF to the market. The Wall Street watchdog filed several amendments today inviting comments either in support or opposition of several crypto trading products, which the agency rejected in August to the dismay of the crypto community, particularly since some ETFs were targeting bitcoin futures and not the underlying asset.

As it was reported by Hacked “On the heels of that rejection and several others, including the regulator’s disapproval of the Winklevoss bitcoin ETF, the SEC decided to “stay” its orders in favor of a “Commission review.” SEC Commissioner Hester Peirce, who supports a bitcoin ETF, previously explained that the SEC Commission would review the “staff orders”, which is the process that is currently unfolding (…)”. 

SEC Commissioner Hester Peirce has criticized the agency recently for denying past bitcoin ETF applications due to concerns over the underlying bitcoin spot markets, rather than problems with the ETF products themselves. She says that this represents an expansion of the SEC’s authority beyond its lawful mandate.

However, given the commission’s recent rulings, Peirce is in the minority on this point; we shouldn’t expect the SEC to treat cryptocurrencies as conventional financial instruments, more accessible to retail investors.

Traditional Markets

Maybe timing couldn’t be better for cryptocurrency investors, as due to a possible bubble burst in traditional markets we could finally see a hefty sum of money shifting towards crypto-based assets.

At the moment of writing, the broader S&P 500 Index declined sits at 2,901.00 while the Nasdaq Composite Index sold off 1.8% to close at 7,879.00. While most sectors finished lower, information technology and the newly formed communication services were the biggest decliners. The CBOE Volatility Index, aka the VIX, surged as much as 32% on Thursday to its highest since early July. It would later settle at 14.22 for a gain of 22.5%. VIX typically rises when the S&P 500 Index falls.

Regarding bonds, the yield on the benchmark 10-year U.S. Treasury note peaked at 3.202% on Thursday, the highest since 2011. Short-term government bond yields also rose, with the two-year yield reaching its highest in a decade. Please remember that yields and bond prices move in inverse fashion.

What really peaks my interest is the current trade talks between China and the U.S. President Trump moved ahead with a new round of tariffs targeting $200 billion of Chinese goods. A full-on scale trade-war between the two most powerful economic powers would surely weaken most markets; the problem being the price of goods would rise both in US Dollars and Chinese Yen.

Hype Cycles

With the low volumes Bitcoin is experiencing (I’m obviously discounting fake volume, as it appears to be a constant so far), it’s not surprising a few good news, here and there, can indeed spice things up. Especially when there are coordinated actions between institutional investors and news sources like CNBC, Bloomberg and the likes. Whenever you see a roll of *amazing* news being shared by traditional agencies, you should definitely pay attention to the charts. What you’ll notice is hordes of dumb-money flowing into the market. That’s when you know things are about to heat up.

For how long will we have to endure this terrible bearish cycle?

Until the big money decides to move.

Just wait patiently and take this opportunity to average your losses. When the time comes to be prepared: start moving some of your funds to exchanges as it’s important not to miss the best days of trading.

Good luck guys! Share your opinions and thoughts down below.

Featured image from Shutterstock.

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