Yikes! The sky is falling again… or is it? It seems that, every time Bitcoin and its altcoin brethren stumble a bit, the end of the world is near at hand. Yes, BTC dropped from $3,550 to $3,357, a 5.5% fall, in a matter of hours, dragging other token values along with it, as the industry shed another $6 billion in market valuation. Analysts were puzzled. In the meantime, Bitcoin recovered a bit, hitting $3,400 once more.
What is going on this time around the old crypto block? Occasional dips like this one are usually accompanied by some regulator downplaying the importance of cryptocurrencies or blockchain technology, but no such commentary can be found. The global elite have departed Davos after the World Economic Forum, but no one there said anything that could be interpreted as “untoward” that has not been heard before. The CBOE did withdraw an application for another much anticipated BTC ETF, but no one noticed.
When no plausible fundamental reason can be uncovered for a movement in our financial markets, the fallback is always that technical positioning is at play. There is a logic to this tune that is actually favorable. Bitcoin had established a period of stability for 16 days that ended on the 27th of January, ranging between tight boundaries of $3,500 to $4,000. Crypto zealots were about to celebrate, when the rollercoaster suddenly headed south.
According to one active trader’s commentary:
BTC continues to look weak. Eventually, alternative cryptocurrencies succumb to Bitcoin. If Bitcoin breaks and closes sub $3,445 area it will retest the 2018 lows If not, BTC continues its sideways action similar to the pre-capitulation at $6,000.”
In case you are curious, the 2018 low was $3,122.
The reason for the latest bullish run up, if it can really be described as such, follows a general narrative that attributes recent positive action to “accumulation”. There have been a plethora of articles forecasting great things in 2019 for cryptos, enough to convince “Buy-and-Hold” investors to establish positions before the positive news hits the airways.
Alex Krüger, an economist and cryptocurrency analyst, explained:
For someone to accumulate, someone else has to distribute. It is a zero sum game. Accumulation per se is neither bullish nor bearish. With the current trading volumes, I’d bet on exchanges and miners currently ‘accumulating’. Eventually they will likely start dumping again.
Yes, transaction volume and industry activity are up, having recovered from the Crypto Winter that had gripped the industry for the better part of 2018, but when Bitcoin sneezes, the other altcoins get a cold, so to speak. Ethereum fell seven percent. TRON, one stellar token that had appreciated 166% over the past month, dropped by ten percent. As BTC recovered, these systems also followed in lock step.
Despite many predictions of positive blockchain developments and the much-anticipated institutional involvement to a major degree in the months ahead, insiders have also noted that 2019 will also be a year of consolidation. There are consequences for the 80% meltdown in valuations that Crypto Winter wrought. A recent report noted that nearly 1,000 blockchain companies failed in 2018. Exchanges and miners have had to cut back or close their doors.
For the time being, one commentator summed up the present situation:
In the short-term, overall, traders expect major crypto assets to perform poorly against Bitcoin and the U.S. dollar. If Bitcoin can remain above the $3,400 level throughout the next few days, traders believe it could prevent a further drop to the low $3,000 region.
At this writing, BTC is at $3,411. Will it hold? Stay tuned.