Cryptocurrency no longer seems like a speculative toy – expect a new rally this summer, says analyst
Q1 2021 hedge fund letters, conferences and more
Whilsts there may have been a massive sell-off in the cryptocurrency world recently, EXANTE's Senior Analyst, Victor Argonov says that we could see a cryptocurrency rally this summer if 2019 trends are anything to go by.
The bitcoin bear market in mid-2021 is very similar to the bear market at the end of 2019: sharp crashes, equally sharp bounces and relatively calm periods in between. Over time, the collapses have become deeper and deeper until the “bottom” is reached, below which the market cannot collapse. In 2019, the bottom was found in December, after which a new rally began immediately. Will there be a similar market reversal this summer?
The Interrupted Cryptocurrency Rally Of 2019
If in 2013 and 2017 the crypto market grew from January to December, then in 2019 and 2021 it “deceived” investors: the rally turned out to be shorter than many expected, after which it was replaced by a phase of a bear market.
In 2019, the notorious crypto winter ended, and in early April, BTC jumped from around $4,000 to $5,000, and in June it even reached $13,000. Many were confident that the 2017 record ($20,000) would soon be repeated, but the rally ran out of steam.
There were several reasons for the slowdown of the rally in the summer of 2019.
- Most of the investors invested in the spring, and in the summer they had neither free money nor confidence in the continuation of the rally.
- There had not yet been institutional investors, which today there are.
- Deliverable cryptocurrency futures exchanges Bakkt and ErisX in mid-2019 remained at the stage of legalisation.
- There has been a political scandal surrounding Facebook's Libra stable currency project. As a result, any projects of global private stablecoins were declared a threat to global stability. Classic cryptocurrencies such as BTC were also criticised, which put investors off.
In September 2019, the Bakkt BTC delivery futures exchange was launched. This was a revolutionary event, thanks to which US institutions were given a completely legal opportunity to buy the cryptocurrency itself, and not just settlement securities, as in 2017 on the CME exchange. It seemed to many that the arrival of institutional capital would resume the rally, but Bitcoin continued to sink. By the time of the opening, Bakkt BTC cost about $10,000, and by the end of the year it had dropped to $7,000. Only since January 2020 has it returned to steady growth.
BTC bear market in 2021 began in May after Elon Musk's speeches on the non-sustainability of the leading cryptocurrency. On May 12 the BTC rate was $57,000, then on May 14 it was $48,000. Perhaps the fall would have been limited to this if Musk had not been "helped" by the US and Chinese authorities. The United States announced the prosecution of the world's greatest cryptocurrency exchange Binance for dubious actions in the country, and China banned its banks and payment organisations from providing cryptocurrency services.
This was followed by a considerable series of new statements and actions by Elon Musk (both against bitcoin and for), Chinese officials (mostly against), large investors like Microstrategy (mostly for) and many analysts with forecasts. The result was a chain of price anti-records, reminiscent of 2019.
- May 19 - $35,000
- May 24 - $32,400
- June 9 - $31,700
- June 22 - $29,000
As in 2019, each of these collapses was followed by a rebound and some stable period. So, in the described interval, the BTC price repeatedly returned to the $40,000 mark, and it even seemed that it was ready to stabilise there.
The 2019 bear market took at least 4 months, while the 2021 bear market has so far lasted 1.5 months. But the impression is that now events are unfolding faster. There is radically more institutional capital in the market, and the active participation of politicians and opinion leaders speaks of a game with openly “heavy artillery”. And this artillery may have already borne fruit: the overwhelming part of the collapse from $57,000 to $32,400 (43%) fell in May, and in June, the minimum BTC rate has so far been reduced by only 6%. It cannot be ruled out that the bears, taught by the experience of 2019, were able to find the market bottom near $29,000 much faster this time.
Where Is The Price Bottom And Should We Expect A Resumption Of The Rally
Although in June new lows in Bitcoin broke the May anti-record by only 3%, this in itself does not prove that the bottom is close. For comparison, we can recall November 2018, when from almost stable $6,000 BTC unexpectedly fell in price to $3,500. But now such a scenario seems unlikely.
According to various analysts, the "unbreakable" BTC levels should have been located in the $24,000- $32,000 region. Given the latest data, this is now $24000- $29000. There are serious arguments in favour of the fact that the bottom is close.
Unlike the bubbles in 2013 and 2017, the market is now less speculative. A very significant part of its participants have a long-term scope. According to research, in March, approximately 50% of BTC's capitalisation was accounted for by retail investors, the other 50% by institutional investors. Both those and others today are well aware of the long-term positive trend in BTC, which, moreover, has become legal in the United States as an exchange commodity. If during the bubble deflation in 2018, BTC lost 5/6 of its capitalisation (the vast majority of market participants sold the purchased assets), then this year it has lost only half of its capitalisation so far. Considering that for several years BTC has doubled in price per year on average, it makes little sense for long-term investors to dump an asset that has fallen in price: it is easier to wait a year for which it is likely to repeat the April highs. Cryptocurrency no longer seems like a speculative toy that you just need to profitably resell and forget.
In addition, if we extrapolate long-term trends from 2014, then the most accurate doubling of rates for the year is observed precisely for the “bottom” levels. In particular, at the end of 2018 it was about $3500, at the end of 2019 - about $7000. Continuing this pattern, BTC is unlikely to be below $28,000 by the end of 2021, making it unwise to sell it at lower prices.
Seeing that the bears are unable to bring down the course to $20,000- $25,000, “hunters for cheapness” are increasingly buying BTC at levels of the order of $30,000. Having made such purchases, they become interested in the return of the bull market. And it cannot be ruled out that he will return this summer.
