With Wall Street still on its history-making Bull Run and markets around the world having experienced remarkable recoveries since the global financial crisis, many investors have been focusing on specific areas of growth. These include tech stocks, which have largely driven US stocks and forex markets to new heights based on emerging economies and their currencies.
Although it may still be a niche sector, cryptocurrency has also played a key role in upward trends for investors of diverse types and backgrounds. This week has seen a large fall for the most famous cryptocurrency, Bitcoin, so does this herald a sea change in the fortunes of cryptocurrencies, or is it just a blip?
On 19th November, a turbulent 24 hours for Bitcoin left it at a 13-month price low. As $14bn drained from the crypto market as all major assets lost value, Bitcoin itself dropped by 5%. In other areas, a dip of this size might make the news but not necessarily the headlines. However as Bitcoin is the best-known cryptocurrency as well as having the biggest market cap and volume, its fate reflects on the entire crypto market.
In fact, Bitcoin’s rivals fared worse, as Ethereum, Ripple, Stellar, Litecoin and many other cryptocurrencies suffered losses between 7% and 15%. For CFD traders dealing in crypto trades, this latest development is bound to be of interest, and their decision to go either long or short over the next few days could be a very important choice. For others already holding a position, the volatility of the sector could prove to be something of a worry.
Although those outside of the crypto sector might not be aware of this, cryptocurrencies have been in a bearish market since the beginning of the year. A level of $6,000 for Bitcoin held relatively steady for six months or more, with dips to the $5,800 to $6,200 range seeing rebounds back up to around prices in the mid-$6,000s.
Now, investors have a decision to make regarding whether to defend this $6,000 resistance level – essentially making it a support level – or risk further falls to a lower region of around $5,000.
Current market conditions suggest that an upswing in the price of major cryptocurrencies is unlikely, but a gradual recovery could be on the cards. Bitcoin maintained stability for the period between August and November, but its latest losses show that momentum is falling away.
The volatility of major US stock market tech sectors is not helping the situation. For better or worse, many people like crypto, as seen by the performances of large companies such as those that make up the FAANG grouping. Previous big hitters, including Nvidia, have seen falls of 10% to 30%, so the few Big Tech names that are never far from the headlines were not the only ones to see downward trends.
While many investors used to view crypto as separate from mainstream stocks and shares trading, the increasing acceptance of this type of currency by blue chip companies and major financial institutions is now blurring the lines.
With stocks, equities and other more traditional investment vehicles in a volatile mood, if not a wholesale downward trend, the fate of cryptocurrencies now intertwines with wider market movements. Many investors in the finance sector still see digital coins as high-risk trades, even though they can produce high returns.
However, the relatively new nature of the whole crypto sector means that some investors are struggling to get a grip on the time scale involved in crypto trading.
Mike Loewengart, Chief Investment Officer at E-Trade Capital Management, commented: “These are more experienced investors, sitting tight and staying the course. Any near-term noise is never a good idea when making wholesale changes. Over longer periods of times, these events are less meaningful.”
The uncertainty in more traditional investor circles regarding the predictability of Bitcoin and movements of other cryptocurrencies is partly why CFD traders have been able to make such good use of them. However, the increasing acceptance of cryptocurrencies by global financial establishments is also affecting the issue.
Singapore’s central bank, the Monetary Authority of Singapore (MAS), has finalised a new regulatory framework for crypto payment services and brought some cryptocurrencies under its jurisdiction. The Straits Times, an English-language local newspaper, reported that the new Payment Services Bill (PSB) is going to replace existing laws and has been in public consultations since 2016.
E-wallets and digital payment tokens will see some effects, and Bitcoin and Ethereum will also come under the auspices of the new legislation. The aim of the new regime is to safeguard consumer funds, guard against terrorism financing and generally give cybersecurity a boost.
The MAS has given digital token payment service providers six months to come into compliance with the PSB after it comes in force. This example shows how times are changing for the cryptocurrency sector and how investors will need to understand these changes to plan their reactions.
For many investors, the popularity of CFD trading lies in the way that what appears to be unpredictable can actually be advantageous when filtered through the right analysis channels. Being able to leverage trading with lower investments than what more traditional forms involve is also a major part of CFD trading’s appeal. A wider and more generalised acceptance of cryptocurrencies as a genuine investment option is unlikely to change the status quo to any great degree.
However, the more that big investment funds, major banks and international financial organisations become involved, stricter rules and regulations are bound to follow. The skills involved in successful CFD trading do not require a fully “wait and see” environment to be effective, but up until now, crypto has had something of a “Wild West” reputation that has drawn many CFD traders towards it. This could very well change soon.