At the end of 2018, I was analyzing the reasons for the bear market in cryptocurrency. It is interesting to look back and check if something has changed. Potentially it could let us predict future movement and development.
When will the bear market end?
As is the case with traditional crises, the bearish trend in the crypto market may threaten the living standards of many; however, for some people, it presents an excellent opportunity (basically, because they are following the rule “buy low, sell high”). Either way, one should keep in mind that investing in cryptocurrencies is a crazy rollercoaster ride of emotions, due to its instability.
Just take a look at today’s market. Quite red, isn’t it? Many crypto investors might want to sell their coins now, when the temptation is greatest. However, this is exactly why one should continue hoDling. It’s almost a marriage promise to be together in good and bad times.
Back in February, Vitalik Buterin, the co-founder of Ethereum, twitted:
“Reminder: cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time. Don't put in more money than you can afford to lose. If you're trying to figure out where to store your life savings, traditional assets are still your safest bet.”
According to Investopedia, there are different reasons for Bitcoin’s volatility:
1. Rate of adoption is hampered by the bad press: news events that scare Bitcoin users include geopolitical events and statements by governments that Bitcoin is likely to be regulated.
2. Bitcoin's perceived value fluctuates. Curiously, Bitcoin repeats Gold’s history:
3. Too much variance in perceptions of Bitcoin's store of value and method of value
4. Little option value to large holders of the currency
5. News about security breaches make investors react
6. Tax treatment of Bitcoin also affects the volatility
7. Scalability issues: to date, Bitcoin can only process 7 tps, Ethereum
can only process 13 tps, meanwhile Visa, Inc. is capable of handling more than 56,000 transactions per second. This disparity must be treated.
9. The use of futures: creating a futures market for trading Bitcoins
will have a profound effect on the young currency
According to the research conducted by Camilla Hodgson from a business insider, the price of bitcoin in 2017 correlated almost perfectly with how often the term was searched for online:
So far, in the majority of cases, manipulation, all types of prohibitions, futures, regulatory crackdowns, AML, KYC were responsible for the low volume on crypto markets in the first half of 2018.
When it comes to predicting the future, there has traditionally been a secretive competition between economists, weathermen, and bookmakers as to who is the worst predictor of coming events. Just take a look at the news from December of 2017, when analysts and blockchain enthusiasts all over the world were expecting Bitcoin to grow at least x100. TenX Co-Founder, for example, is still ‘Quite Confident’ that Bitcoin Can Hit $60,000 This Year.
According to Cointelegraph analysis, a breakout above $7,000 increases the probability of a rally to $7,750, where the BTC/USD pair will face strong selling pressure from the downtrend line and the horizontal resistance. Once this level is crossed convincingly, a rally to $10,000 should be on the cards.
It’s important to point out that Bitcoin trading volume is nearly 70% of the total cryptocurrency market. In other words, a major crash in the bitcoin market can take down the whole crypto market with it.
Some people say that history is repeating itself. Unfortunately, in this particular case, that approach is not valid. Below you can find two charts, that represent the same period in 2017 and 2018. As one can see, we could even say that they are negatively correlated.
The main issue that persists to date - is the real-world use of cryptocurrency. It should be noted that cryptocurrencies were designed to be used online. Due to the scalability problem (low number of transactions per second) transactions can get stuck in the queue, thus impeding the implementation of cryptocurrencies and blockchain into the global financial system.
If bitcoin creators find the solution, as they did once in 2017, when Segregated Witness was implemented, thus unleashing space for additional transactions by splitting off a large amount of transaction data from the transaction block, the whole crypto market will benefit, positively influencing the price of Bitcoin and Altcoins.
The future of Bitcoin is anything but certain, and making Bitcoin price predictions for 2018 is almost 100% doomed to failure. Nevertheless, given the way things have been going, it is reasonable to assume that, at least for the short term, the price of Bitcoin should continue to stay volatile. Unless something extraordinary happens, like China will lift the ban on cryptocurrencies or USA bans all the crypto exchanges.