Christmas rally to post declines, why is volatility up?

  • By Tom Cleveland

  • January 15, 2019
  • 1:20 am BST

Cryptocurrencies have been in decline for nearly the entire period of 2018. After the asset bubble burst earlier in the year, the trend has been forever down, a textbook version of the definition of a downward trend – lower lows followed by lower lows. The perturbations have been rocky from time to time, but the amazing part of the journey was an extended period of low volatility from August to November. Analysts were soon mesmerized by the newfound stability, never before seen on crypto charts for some time. Was this finally the sign of a new bottom?

The answer to that question, unfortunately, was “No”. Stocks were slaughtered in October, while cryptos acted as if nothing was happening. Speculation was that a few investors, and it would not take very many, had shifted allegiances and moved capital into Bitcoin and other altcoins, as a new type of “safe haven”. Volatility in the past had prevented this type of situation from ever transpiring, but, perhaps, the brief moment of stability in the token arena had convinced investors that things had changed.

Bitcoin has been known to be the “safe haven” for crypto investors that had gotten “cold feet” attempting to whether assaults upon its altcoin brethren, but it had never demonstrated a direct correlation with adverse panic in the equity markets. Yes, there had been occasions, like the crisis in Cyprus in 2013 or when Greece threatened to leave the EU, when Bitcoin was given a boost at just the right time. Unfortunately, “safe haven” status can have a downside. If investors truly had stashed cash reserves in BTC, then in late November, when stocks rallied, they quickly withdrew funds. Crypto values took a nosedive, but, at least, there was a mild recovery before Christmas.

During that mild recovery, many analysts were relieved and began to look northward again. One favored analyst that goes by the alias of “The Crypto Dog” proclaimed: “Bitcoin found support near historical highs at $3,000. Earlier this week, I watched Bitcoin’s volatility and sell volume stall the further its price fell, leading me to wonder if the fabled ‘$3,000 support’ would be front ran. It was. If bulls are able to push past $4500, $4800 is the last bump in resistance that stands in the way before $5,400. At this time I am not anticipating a rally beyond $5,500, nor can I guarantee more relief even past $4,500, though we must not count any scenario out.”

As it turned out, we could rule that scenario out. BTC nearly hit $4,200, but quickly recanted. It is now below $3,800 again, bouncing about and looking for a new direction. As for volatility, the recent intensity of up and down movements is a cause for concern. There is such a psychological component related to the value of BTC and others that it is difficult to say when price volatility will cease being such an issue. It will take longer periods of sustained stability, not just three months, to suggest that wild swings in price behavior are a thing of the past.

As for now, crypto enthusiasts can take solace that the recent period of freefall seems to have abated. According to Joseph Lubin, the co-founder of Ethereum, the worst could be over. He recently said: “I am calling the crypto bottom of 2018. This bottom is marked by an epic amount of fear, uncertainty, and doubt from our friends in the 4th and crypto-5th estates.”