|27 June, 2019

'Crypto Winter' turns 'Crypto Craze' as Bitcoin hovers near $12,000

Monte Safieddine is a market analyst at IG Dubai. He has spent nearly a decade in the FX industry and has held roles within financial firms that have included risk, analysis, statistics, and trading. Safieddine holds a Masters in Economics from Wayne State University where he completed multiple PhD-level fields and taught undergraduate students. He provides commentary on financial markets, including FX, cryptocurrencies and commodities, and publishes IG’s Daily Market Report and Weekly Market Report.

Website: https://www.ig.com/ae

Bitcoin's price relatively outperforms as altcoins fail to play catch up.

Significant successive hikes in Bitcoin’s price over the past few months have not only managed to shift the atmosphere surrounding cryptocurrencies from bearish to bullish, but have also given the leading cryptocurrency the bulk of the overall crypto market share, standing now at 60% of the total, as the remaining cryptocurrencies fail to keep up. 

Whether the catalyst for the latest surge has been Facebook’s announcement that it would launch its own cryptocurrency, heightened investor interest on a return to highs unseen since the end of 2017 when the infamous $20,000 level held, Bitcoin inflation levels dropping at a time when fiat currency monetary easing is expected to rise, or simply a speculative move enticing fresh money into the market, the net result has been attention shifting back to the blockchain-based cryptocurrency, renewing interest from investors and traders, small and large alike.

While plenty will rush to discuss the causes of the recent market moves, or speculate on the next level that it’ll reach (yes, discussion of Bitcoin reaching the $1 million mark has swiftly returned), the lack of liquidity on the exchanges and the lagging movement amongst other cryptocurrencies that show promise in applying the blockchain in other avenues (such as Ethereum) prove that the recent moves have been largely speculative, and hence open to retracement. 

Otherwise, investor and institutional interest in cryptocurrencies would have witnessed a surge in cryptocurrencies that aren’t just used as a medium of exchange and store of value, but also for building the foundations of a future financial system that could use blockchain applications.  It also means Facebook’s Libra announcement isn’t a sound catalyst for the recent surge in Bitcoin’s price.

Interestingly enough, in terms of investor positioning, the latest CoT (commitments of traders) report regarding positions held by larger speculative traders on the CME (Chicago Mercantile Exchange) shows they haven’t shifted from their currency majority short 57 percent bias, meaning they haven’t been beneficiaries of the recent moves.  Crypto community traders on the other hand, have continued to “HODL” (hold on for dear life) even when the crypto winter took its toll on long positions and crashed the optimism surrounding cryptocurrencies. 

While its future price direction may not be as clear, what is clear is that the increased volatility will offer trading opportunities in both directions.  HODLers will continue to hold for the long-term, larger traders (according to the CoT report) holding shorts for the time being, and leaving intraday traders to capitalise on volatile price swings - be they up or down.

Any opinions expressed here are the author’s own.

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© Opinion 2019

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