Is it too late to take a stand on Bitcoin and cryptomoney?
Bitcoin jumped by nearly 280% in the year 2020, eclipsing the honourable performance of the Nasdaq by 43.2%, gold by 10.67% and the SP500 by 13.6%. After climbing to a new peak of $42,000 in early January, more than double its previous record set three years earlier, Bitcoin finally let go, falling more than 30% from its peak. Is this a new crash in sight or a simple consolidation?
First of all, it should be remembered that a 30% correction on Bitcoin is common; there are no less than ten such corrections during the ascent between the beginning of 2015 and the end of 2017, before a bearish cycle has begun. Indeed, Bitcoin evolves in a relatively regular cycle with a strong increase of about 50 weeks, followed by a horizontal to downward period of about 3 years. As can be seen graphically, based on past experience, this rally could potentially extend into the fall.
Source: Valentin Aufrand, eros-trading.com
The growing interest from the professional sphere is also a positive point. The Chicago Mercantile Exchange (CME) saw its volumes of the future Bitcoin contract explode in the course of 2020. This is also the case for the Grayscale Bitcoin Trust tracker, reaching a market capitalisation of over $20 billion. This is still a drop in the ocean, but other institutional investors could be tempted to join the movement in order to diversify or to hedge against inflation risks. A risk that is increasingly worrying in the face of the massive stimulus plans launched by governments since the start of the pandemic. The zone, which has been particularly active between 20’000 and 25’000 dollars, could encourage a new wave of purchases by professional players.
Without forgetting private investors, not to be underestimated (a nod to Gamespot), who are increasingly informed and numerous, along with cryptos that are increasingly accessible via mainstream platforms such as Paypal, Square, Revolut and others that are being added. Another phenomenon is that a growing number of investors have been storing their cryptos outside of trading for more than a year, a first. According to the research site crypto Glassnode, this is a sign that many investors are not planning to sell soon and have a long-term view, rather than speculative. Several platforms such as BlockFi in the United States or Swissborg and Bitcoin Switzerland in Switzerland pay interest on cryptos deposits of up to 20% annually; also encouraging investors to keep their cryptos despite volatility. On the other hand, this persistent volatility will continue to keep many more conservative investors out, especially among professionals.
Evolution of the number of Bitcoin placed on the main exchanges
What about the Altcoins? While the price of Bitcoin is under pressure, the total market capitalization of the cryptos market is still close to the historical high of around one trillion dollars. As is often the case, Bitcoin starts the movement but saturates when it reaches about 70% of the market. Investors then fall back on other cryptos, notably Ethereum, whose future contract will be listed on 8 February on the Chicago Mercantile Exchange (CME). Decentralized finance projects (DeFi) such as Polkadot, Chainlink and Uniswap are particularly popular. Looking at the Bitcoin dominance chart, the outperformance of the Altcoins could continue for a longer period of time, but Bitcoin tends to regain the upper hand when it approaches the 50% dominance level.
Bitcoin dominance on the left and total market capitalization of cryptos on the right
Source: Vincent Ganne, Trading View France
The frenetic pace of the cryptomoney industry in 2020 is obviously unsustainable over the long term. Excesses are correcting themselves with excesses, however, cryptomoney and its adoption have evolved strongly over the last three years, justifying these new highs and this bull market cycle still seems to have potential. Of course, one should remain cautious due to the high volatility characteristic of the cryptos market.