Four Catalysts for a New Crypto Bull Market
Today we look at some of the biggest factors that can help breathe new life into bitcoin and the cryptocurrency markets, as they could definitely use some resuscitation measures right about now. It is worth bearing these particular subjects in mind before investing more money into crypto and related products, and we’ll give you a few hints about what you should probably be paying attention to as we head into the new year.
Though the last 10 days have seen some of the most brutal action for bitcoin and the entirety of the altcoin markets in 2018, we want to assure you that, by no means, is all hope lost. Far from it. A combination of factors have all contributed to a rather nervous trading environment, ranging from the SEC’s continued delay of making a decision on how to proceed with a Bitcoin ETF, to China’s clampdown on electricity supply to its vast mining farms, to recent revelations of widespread price manipulation, to the ongoing civil war in Bitcoin Cash, which sees two highly-contentious forks competing for dominance in a hash rate competition that seemingly has no end in sight. Prominent analysts put estimates for bitcoin’s end-of-year price somewhere between $2,000 and $10,000 – not very helpful. Bitcoin currently needs to overcome the $4,600 level to be considered eligible for a new bull run, which is a statement not many were expecting to hear in late November 2018. Some analysts, however, continue to hold out hope for a $15,000 bitcoin Christmas:
Fundstrat's Tom Lee told CNBC he remains bullish on bitcoin and bets on a recovery soon despite prices falling to more than one-year https://t.co/hQzjOQv1gg
— Betting52 (@Betting521) November 24, 2018
In spite of all the uncertainty and drama, which has no doubt created an atmosphere of panic that has shoved most coins into double-digit losses since early November, bitcoin still isn’t really doing that bad. Transaction volumes seem to be on the rise, costs per transaction are at the lowest they’ve been in 16 months, and transaction fees remain manageable at about $0.35 to get a transaction included in the next 1-2 blocks. Put simply, the Bitcoin Network is still quite healthy – its fundamentals haven’t changed in the slightest since the introduction of SegWit last year – meaning there is a good chance BTC is simply oversold as we enter the last days of 2018.
Lou Kerner of advisory firm CryptoOracle recently likened bitcoin’s current situation to that of Amazon after the dotcom bubble burst, which saw it sink in price by nearly 95%. Of course, it survived and went on to become one of the world’s most successful corporations, rising by up to 17,000% since. He also noted that bitcoin had never been down 2 years in a row – even if you invested in a previous price peak, you were sitting on a pretty healthy profit some 2 years later. Even though it might feel like it, this still remains the case as of today.
Crypto venture capitalist: View bitcoin as a survivor like Amazon after the 1990s dot-com bubble https://t.co/2QsxjmiF9C
— Lou Kerner (@loukerner) November 21, 2018
To put things in perspective: despite this week’s dump, which saw more trading volume than any point in the last 6 months, the price of BTC is still up a whopping 480% over the last 2 years. I know this fact doesn’t help anybody who bought in at any time during the last year, however, as far as most long-term investments go, it is still doing spectacularly well. For comparison, over the same 2 year range, the S&P500 stock index is up 17%, the price of gold is up a meager 4%, and the price of silver is down a dismal 14%. What does this mean for the current state of things? Well, it means that those who bought BTC 2 years ago who are still HODLing could cash out today with a nearly 5-fold profit. While this isn’t nearly as spectacular as a 10-20x profit they might have achieved having sold in early 2018, its still a healthy profit and thus in this respect, the price of BTC has every right to come back down in price.
If you ask "why has crypto gone down so fast" answer is the same as "why did crypto go up so fast last year".
New tech, price mostly driven by speculators – means that the price reflects the price, instead of tech fundamentals (which exist & are strong but are hard to measure).
— Andreas M. Antonopoulos (@aantonop) November 21, 2018
Let’s also not forget that this is only the 4th biggest crash for BTC since its inception. There have been longer, more brutal downtrends in bitcoin’s 10 year history, and they have all been followed by exponential gains and new all-time highs. To some, bitcoin is just doing what its always done, even if things may seem gloomy now. If bitcoin continues to behave as it has historically, chances for a rebound that catapults it above previous all-time highs remain strong.
— Dennis Parker⚡️ (@Xentagz) November 21, 2018
Aside from the rationale that it should follow historical trajectories, what are some of the catalysts for the next bitcoin bull run? Let’s explore four of the biggest ones in detail.
Catalyst #1: Positive Bitcoin ETF Decision by SEC
This is the primary news that could reinvigorate new life into bitcoin, and cryptocurrency in general. The Securities and Exchange Commission (SEC), responsible for the oversight of securities (stocks, bonds, ETFs) traded on U.S. exchanges reviewed no less than 8 separate Bitcoin ETF applications during 2017 and 2018, giving thumbs down to all of them. The reasons they had were many, but in general they feared it could lead to ruin for many investors, as bitcoin is:
- not governed by any central authority or established body of individuals
- prone to erratic swings in price and high volatility
- immeasurable according to SEC standards, as it is not traded by any exchange currently licensed by the SEC.
This last point is probably the biggest problem that the SEC has with bitcoin. Cryptocurrency exchanges are not registered to do business with the SEC; the main reason being they are not selling stocks or bonds, so they do not need to be. Therefore, there is no legal way to establish an average price for bitcoin that would underly the value at which a Bitcoin ETF is traded. Some bitcoin futures markets – a product similar to an ETF but not quite the same – currently use a price averaged from 4 or 5 top exchanges to determine its price of bitcoin. However, these exchanges have seen their fair share of scrutiny from federal regulatory bodies who are worried that they may be manipulating the price of bitcoin during trading activities, which would thus adversely affect the corresponding price of bitcoin futures.
Earlier this month, the official deadline for public comments to the SEC about a Bitcoin ETF passed, and they are expected to make their final decision in February. Their decision is of course based in the interpretation of pre-existing laws, which are unlikely to change between now and then. However, if they were to interpret things in such a way that they have not yet demonstrated before and end up signaling approval of a Bitcoin ETF, this could be a major game changer as it would open the door for a whole new class of investors. At the same time, it would signal a sort of federal legitimacy for bitcoin that it not yet experienced, perhaps also increasing the confidence of others to start getting involved in the cryptocurrency game.
It’s also worth noting that even if the SEC doesn’t approve a Bitcoin ETF, it doesn’t necessarily mean other government won’t. After all, the United States is just but one country and there are many more that are actively enthusiastic about cryptocurrency. Take for example the country of Switzerland, which recently approved its first cryptocurrency-backed ETP (Exchange Traded Product), which is a stock market-listed fund backed by a basket of 4 different cryptocurrencies (half of which is BTC). In short, a negative outcome with regards to a Bitcoin ETF certainly isn’t the end of the world for bitcoin.
Catalyst #2: End of BCH Civil War
We at CoinClarity have covered this issue extensively in the past, but for those who don’t know much about it, here’s a quick low-down: On November 15th Bitcoin Cash (BCH) effectively split into 2 different coins, both vying for the title of the BCH market symbol, one side (BCH ABC) backed by bitcoin mining company Bitmain along with bitcoin.com owner Roger Ver and the other side (BCH SV) backed by blockchain developer Craig Wright and the Calvin Ayre-owned Coingeek mining pool. The reason for the split was Wright’s belief that new changes to be made to the BCH ABC client software steered it too far from Bitcoin Cash’s philosophy of acting as “digital cash,” which spurred him to create his own implementation of the BCH protocol, called “Satoshi’s Vision.” Ver and Jihan Wu of Bitmain vowed to use their majority of community support to help insure victory for ABC, while Wright and Ayre vowed to use Coingeek’s hashpower to ensure victory for SV.
What followed was nothing less than an all-out bloodbath, with both sides getting pretty dirtied in the process. Ten days later, it would appear that both sides had lost, as the price of both forks combined was far below that of the price of BCH on November 14th. Technically speaking, victory has already been handed to BCH ABC, who retained control of the BCH symbol while most exchanges figured out what to do with BCH SV (it is by and large now being referred to as “Bitcoin SV,” or BSV). Indeed, ABC had dominated in not only community and industry support but hashpower as well, ahead by some 32% in overall proof of work and 14 blocks in chain length as of the writing of this article. The two forks had forever split – no longer compatible with each other – yet Wright’s camp has shown no sides of submission.
Instead of taking the BCH symbol away from his foes Ver and Wu, he finds himself in the position of leader of the new altcoin, Bitcoin SV, though at great cost to the entire crypto market. It is estimated that both Ver and Wright probably sold vast stores of BTC to help fund their war efforts, not only in terms of the fiat needed to pay for additional hash power but also in terms of their own altcoins in order to help prop up their falling prices. This has had the effect of diminishing the price of BTC, and however unwittingly, their own coins as well.
Relations still remain cold between the two camps, but one thing that would likely help stop the blood-letting is if one side acquiesced to the other. Rationally, this would mean Wright would acquiesce to Ver, as the exchanges have already decided for him that he lost the battle. Realistically, Wright’s ego has proven to be too immense for this possibility to ever happen, and he would probably rather lose every last cent (and that of his partner Calvin Ayres) than capitulate. After all, this is the man who once claimed to be Satoshi Nakamoto (he still does) and waffled on promises to provide evidence of such. Nevertheless, once his will has become irrelevant in the eyes of the market, things are definitely bound to improve as the uncertainty he has created for crypto investors will finally be dissolved.
Catalyst #3: Bakkt Futures Markets
Bakkt is a recently-formed company owned by financial market owners Intercontinental Exchange, created with the goal of leveraging Microsoft cloud solutions to produce an open, regulated, global ecosystem for the transfer, trade and storage of digital assets. The company is partnered with Boston Consulting Group and major retailers such as Microsoft and Starbucks. Through creating a highly-integrated platform, both consumers and institutions can legally buy, sell, store and spend digital assets within their global network. Bakkt is a big deal because, as a highly-regulated company that knows the ins-and-outs of properly running financial markets and exchanges, it can bring an air of legitimacy to the world of cryptocurrency which it currently lacks – even if the SEC ultimately rules against the formation of a Bitcoin ETF.
Many deep-pocketed investors remain on the sidelines of crypto altogether because of fears about its legality. However, one of Bakkt’s upcoming products (slated to open in mid January 2019) is a Bitcoin Futures market which will have a lot of credibility not currently established in similar, pre-existing crypto futures markets. This could very well make Bakkt the perfect entryway for a new flux of money into bitcoin, as well as other cryptocurrencies, and be just the cure for bitcoin’s current blues.
With a futures contract, a purchasing party locks in a price to purchase a particular commodity with a contract; in this case the commodity is bitcoin. If the price of the commodity rises above the purchase price of a commodity, it can be sold for profit. If the price of the commodity falls, the futures purchaser is still required to pay the price for the commodity listed on the contract. While some might see this as an example of gambling, it should be noted that such futures contracts are frequently useful for those counting on buying or selling a commodity at a given price and can be seen as a way to escape market volatility. It should be noted that Bakkt is still seeking regulatory approval for its Bitcoin futures market, though this is expected to be granted without problem.
Catalyst #4: Boost in Stock Markets
For the longest time, there was very little correlation – or no correlation whatsoever – between the price of bitcoin and the stock markets. This relationship began to change in 2017 when Wall Street-sized institutional money started flowing in to bitcoin, helping to boost its price to extraordinary new highs. Even in 2018, the correlation between the crypto and traditional markets remained relatively flimsy, though crypto was indeed a class of investment that earned it placement in the “extremely high risk” category by financial media outlets. It shares this distinction with penny stocks, test-phase drug companies and emerging markets, which tend to fare well when times are good. When times are bad, on the other hand, things can be really bad for these types of investments, as money tends to shift out of them first in favor of more traditional or safe haven investments (such as the S&P500, or in worst-case scenarios, the US dollar).
During the first three quarters of 2018, things were going well enough for the stock market; it had been settling in to calm waters after a magnificent 7-year bull run that had propelled the Dow Jones Industrial Average (DJIA) to all-time highs. However, things started to take a turn for the worse on October 5th, when the index took a sharp, thousand point drop over the course of 2 days, and things have only become more grim in recent trading days. The DJIA currently sits below its level on January 1st, 2018, meaning all gains made during the year have now been erased. Naturally, institutionally-held money would exit high-risk investments such as cryptocurrencies during periods of a correction first, and this may be one of the contributing factors to bitcoin’s recent fall.
However, if things were to suddenly rebound and the bull market were to resume, deep-pocketed investors at Wall Street’s hedge funds might find themselves tripping over each other to rush back into high-risk category investments such as bitcoin, and this advent could very well serve as a catalyst for resumed expansion of the crypto markets. Of course, for now we can be hardly certain of what will actually propel the markets back into positive territory, and only hope that things will get better before they get worse. It is worth keeping an eye on all 4 of the above-mentioned factors before plowing more money into the cryptocurrency space, and we will be sure to let you know how their outcomes develop as they come to fruition.