Given the current capitulation, did the crypto bull ‘run’ its course? The present crypto market crash was well… surely coming. It’s the way market corrections happen — these relatively large pullbacks are needed to regain a healthy upward momentum. The 30%-50% corrections are normal phenomena to occur in cryptocurrencies (as opposed to 20% in the stock market that confirms bearish shifts) before a resurgence of the wider bull run. This effect will recharge the engine to bring forth a more robust rally.
Considering some fundamentals, in May’21 exchanges saw the largest net inflow of bitcoin since March’20. Also, in candlestick patterns the technicals showed BTC continued lower high and lower low — the pullback was quite imminent.
In simple explanation, the market saw quite a few 20% to 25% dips but these were eaten up extremely quickly by both institutional and retail investors (dipping and buying in 1-day candles). Hence, the market never had enough time to capture that liquidity at the bottom of the dip and to have a slow but healthy upwards movement. Leading to selling pressure getting pushed into the future and ending up creating larger corrections as seen now. 2013 and 2017 saw similar trends. In 2017, BTC had 6 major corrections 30% to 40% deep. In 2021 so far, BTC had two major corrections 31% and 35% deep.
What assisted the dip and fuelled the FUD was a mix of tweets, warnings and statements being released concurrently. Elon Musk re-establishes Bitcoin’s extensive carbon footprint. China talks of a crackdown on crypto mining/trading (again). Powell’s call for tightening crypto regulations. To add a little perspective, the market rise came about very similarly (food for thought).
Today BTC touched $31K (it was at one point $65K only last month). Now the question arises — if the market doesn’t close and use this as support to pause the trend and begin buying — it is very likely the downward graph will continue. After all, it’s the game of support and resistance as we know it in the world of crypto assets. We have to wait and watch if the market converts into support and starts buying or shows resistance and sells off.
My opinion remains that there will be a lengthened downward trend to stabilise this bull run — which was filled with a ton of hype (proof of stake, NFTs) and took a sudden steep upward turn. An extended timeline for the bull run will drive a more sustainable upward growth cycle. If that happens, we’re likely to see a market peak around mid/late 2022. There are many predictions for the blow-off top to be this year i.e. BTC reaching $100K — I think is improbable.
So when’s good to buy? Step back to evaluate and keep an eye out for some milestones:
- Ethereum Improvement Proposal (EIP) 1559: a transaction pricing mechanism to overcome the problems seen with its first price auction model; introducing two different types of fees i.e. base and inclusion fee.
- Cardano’s smart contracts support: it allows developers the ability to utilise Cardano’s blockchain providing the tools for more comprehensive use cases such as DeFi Dapps, NFT services, crowdfunding, etc.
- Polkadot’s parachain functionality on Kusama: parachains are individual Layer-1 blockchains running in parallel within the Polkadot ecosystem that deliver better security, scalability, and interoperability.
Time to sell? Consider it an opportunity for rotation, look into Layer2 scaling solutions. Or any early-stage project with a solid use case (small caps are the real deal for retail). And in case HODLing, make your crypto work for you — here’re few options.
- Open a crypto savings account and earn interest without having to trade using an exchange.
- Stake your crypto — staking can yield significant profit. Your coins get locked for a given period and used to validate transactions on the block.
- Yield farming necessitates a well-considered investment strategy and comes with risk to receive gains on your cryptocurrency holdings.
* not financial advice but quick notes on the current market.