This time last year the rise of Bitcoin and other crypto currencies seemed unstoppable. Bitcoin appreciated by some 2000% before it came crashing down to earth at the start of this year. After trading just below $20,000 last December, it is now trading around the $6,600 level. So, where is the crypto market likely to go next, and is it a safe investment?
The epic rise and fall of Bitcoin in the past eight months’ has dramatically eroded crypto’s reputation as a stable asset or as a genuine rival to the global fiat currencies. However, it is worth remembering that back in April 2017 Bitcoin was trading at $1,000, it is currently six times higher than this level. Thus, for those who got in early enough, crypto remains an extremely profitable investment.
Crypto started to lose is lustre after a regulatory crackdown threatened its position as a meaningful challenger to the fiat monetary system. The main global regulatory bodies have still not agreed on a comprehensive regulatory strategy for crypto currencies. However, if the value of crypto starts to creep higher in the coming weeks and months then we would expect the regulators to come up with a list of rules that crypto brokers and traders need to follow.
While this may go against the very ethos of crypto, Bitcoin was set up in libertarian spirit, a regulatory framework for the crypto community could be the boost that crypto currencies need. If there was a comprehensive regulatory framework for crypto currencies then it could attract a broader range of investors, including some of the more risk averse who have typically shunned crypto in recent years. Thus, the regulators’ could give Bitcoin and cryptocurrencies a big boost in the coming years.
Another factor that could trigger a crypto recovery in the longer term is the strength of belief within the crypto community for its mission. There is a huge cohort of technology enthusiasts, millennials and others who support the libertarian aspirations behind crypto currencies and also have a desire to disrupt the financial marketplace. This is a powerful source of support for crypto, which is one reason why we haven’t seen the value of crypto dwindle to nothing in recent months. We expect this support will likely only grow in the future, and could become a central pillar to crypto’s growth and future success.
In the short term, technical analysis also seems to support a recovery for Bitcoin. A key buy and sell indicator is suggesting that Bitcoin’s latest trend line has broken above potential stop levels, which suggests that a recovery is due. While we don’t expect to see a bull run back to the December 2017 highs, if the Bitcoin price has indeed bottomed just above the $6,000 level, then the return to the $7,500 level from June, and potentially the $9,000 level from May, could come back into play.
It will be interesting to monitor the next phase of the Bitcoin story. If crypto has matured then the upswings (and downswings) could be less violent than we have seen in the recent past, meaning that Bitcoin and its other crypto counterparts may start trading in a less volatile fashion and more in tune with other asset classes.
This could be both a blessing and a curse: Bitcoin et al could find it easier to go main-steam, however, crypto could become more correlated to traditional assets such as stocks and FX. This would ultimately make the whole financial system even more unstable.
At this stage two things are certain, crypto isn’t going to disappear any time soon, even after the sell-off from earlier this year, and cryptocurrencies will remain a highly unpredictable market, with high volatility.