A Realistic Approach To Cryptocurrency

We are at an incredibly significant time in cryptocurrency. With the halving approaching and the recent price action, plenty of people have been getting bullish, ready to dust their astronaut helmets off, and plenty of posts/articles like “how high can Bitcoin go?”. This is not one of those posts, rather, it’s similar to how low can Bitcoin get? I’ll rip the bandaid off right off the bat and say that the recent price action is likely a bear market rally. We are going to top off and see new lows eventually, but how low? There are several points that I’d like to discuss with you:

THE STATE OF THE MARKET

We are all fans of cryptocurrency here. We can all recognize its utility and its virtues, but many people in this space like to ignore the problems. If you are someone like this then I’d highly recommend passing up on this post, you can go find rainbows and lambos elsewhere, I’d prefer to get real here.

 It’s a bit of a soft spot, but none of the prices that we see today are organic. Bitcoin didn’t go from less than a penny to $6,000 naturally. In fact, it didn’t even get there because “the demand for it” drove the price up, we ended up here through manipulation. Again, I like Bitcoin as much as the next guy, but Bitcoin is not worth $6,000. Ethereum is not worth $150. Litecoin is not worth $40. THESE COINS HAVE VALUE, but not the value that they have today. No one in the real world is using the vast majority of these coins outside of people in this space. Yes some of their networks have real world applications, especially Ethereum. Yes some vendors accept cryptocurrency as a payment method. But to say we got here because of the demand for these assets is dishonest.

If people with enough weight to move the market didn’t realize how easy it was to make money in this space by inflating the prices, we wouldn’t be here. But we are here. And likely not going anywhere. However, we can just as easily fall just as quickly as we went up. Bitcoin can fall to triple digits. Ethereum can fall to less than a dollar. Litecoin can fall to less than a dollar. Will they? Not likely. But when you’re dealing with something where the market value for it is not legitimate, then the best approach is to expect nothing and to anticipate anything. 

CYCLES AND THE HALVING

Bitcoin is clearly a cycle. Looking at that cycle, Bitcoin has had plenty of rises and falls. When it falls it has consistently retraced 50% - 61% every time. Bitcoin has only retraced 33% this cycle, if Bitcoin were to fully retrace, we would land around $1,500. With the halving approaching, that can have two implications: 

1. We are going to break the trend of the halving being the beginning of a new bullish cycle

2. Bitcoin is going to have its smallest retracement in history

In the first scenario, Bitcoin’s halving doesn’t need to be a bullish event. We can still be in a bear market for another year and enter another bullish cycle. But what kind of impact would falling to $1,500 have on the market around/after the halving? Would it have a lasting impact on the psychology of these markets? Would it damage the cycle at all presented above? 

The second scenario could be just as dangerous. We would be left with the same conclusions as 2017, wondering if this is legitimate or another episode of manipulation. What kind of impact would that have on the markets? 

CONCLUSION

For the people who care about these markets for what they are or are developers of certain projects, the prices shouldn’t make much of a difference. Personally I’m a trader with a very small HODLing account in comparison to my trading account, so I’ll trade it up or down. But there is a significant number of people in these markets looking to make money and get out, who questions like this should have a significant impact on their strategy going forward in this market. 

For those people I would suggest not investing more than you can afford to lose. For markets as susceptible to manipulation as these markets, it’s entirely possible that a year like 2017 could happen again. But realistically I wouldn’t count on it. 2017 was an entirely different market. Gains of that magnitude exclusively seem to happen in undiscovered markets. Now, everybody knows what Bitcoin or cryptocurrencies are. Another point that should be noted was that these markets could only be traded in one direction. Meaning you could only trade it up. But with the opening of the CME and the ability to short in December of 2017, prices began to tumble. With traders having the ability to short or long, I would say that it’s entirely possible that we never see prices reach as high as they did again.