What a difference a week makes in the Bitcoin investment world. Last week, the Bitcoin balloon deflated, fell down near $3,400, and everyone and their grandmother was predicting a true bottom below $2,000. Then suddenly on last Friday afternoon, demand for BTC erupted, carrying its value back past $3,600 and dragging its altcoin brethren along with it. Amidst the celebrations, however, a few notable “buzz-killing” analysts came forward to declare, “Hold on, not so fast, we are not out of the woods yet!”
It is difficult to believe how excited a few “hodlers” can get from just a $200 price rise. Yes, the “Average True Range” indicator for the last two weeks has been $95, but it was not that long ago that the ATR (14) exceeded $200, which at that time seemed to be a sign of stability. But, a $200 northerly move does not a bottom make. For example, the market today has beaten the price back down to $3,550 for most of the day, although a late day surge has lifted it back to the $3,600 threshold. Investors need to remember that once Bitcoin crosses $3,600, there are nearly a thousand trading robots that will issue instant “Sell” orders.
One could argue that buyers have won the battle versus programmed “black boxes” for the time being, but what is going on in the background? Mati Greenspan, an analyst with eToro that follows cryptos, thinks he knows the answer. There was much grinding of teeth when Chinese New Year began on the 28th of January. The official day recognized was February 5th, and celebrations were to continue through February 19th. Several exchanges tried to determine if crypto markets took a hit, but the opinions were mixed. Now Mati thinks that Chinese revelers are back home from family visits, turned on their computers and VPN access, noticed bargain prices, and went on a buying spree.
In his newsletter, Mati reminded his readers that, “In order to say definitively that the bear market is over, we would need a strong break above the key psychological barrier of $5,000. In any case, even though the technical indicators remain bearish, the fundamentals continue to grow stronger. Volume across crypto exchanges over the last 24 hours have reached a fresh high of $25 billion on Friday and have sustained well above the baseline of $15 billion since.”
Investors seem to forget too easily that a lack of liquidity begets volatility. Another firm that follows cryptos, BitOoda, spoke to this issue in its correspondence: “As a result, prices stay in a tight range for days, only to gap 200-300 points in either direction. That’s exactly what one would expect when an entity needs to either buy or sell any significant volume in a thinly-traded marketplace.” BitOoda is hinting at what may occur when large institutional players start to participate via exchanges, rather than through OTC desks, as has been the case. Large orders must be subdivided, so as not to cause huge price swings in an illiquid marketplace.
BitOoda also could not resist the opportunity to speak the conventional wisdom of the Street with respect to bottom formations, while trying to draw parallels to silver price behavior: “Ever since the price peak we have had lower highs and lower lows, which is a signature of a bear market. From the silver analog we expect the final wave of desperation to take us to the mid-to-high $ 2000s before the market starts the recovery. We could be wrong, of course, and until the 2018 low is taken out (it has not been revisited yet), there is a possibility that the sell-off is done.” 2018 low ~ $3,200.
Do you think the bear market is over? Has a true bottom formed for Bitcoin prices? One analyst offered this bit of common sense advice: “Sustained bull runs are notable by the way up, somewhat down, way up pattern we often see. Bitcoin bear markets are far less predictable. If you truly believe we’re in a bull run already, it wouldn’t be advisable to have any longs out beyond $4,000 for a while yet.”