The Rough Seas of Crypto Markets
So far, we have seen amazing growth since the summer of 2020 for Bitcoin, with a little pullback in January of this year. But honestly, the January correction is all but forgotten, due to rapid recovery mainly caused by Elon’s dogecoin tweets and later by $1.5B acquisition of Bitcoin by Tesla, Inc. Because of this, we have seen BTC prices almost reaching a $6oK price point, which is insane, considering we were at $8k, exactly one year ago. Unfortunately, parabolic runs like we saw from January until the end of February are unsustainable. Many Data Science models showed that we were entering a euphoric stage of the cycle, which previously signaled the end of the overall bull market. Thankfully, Bitcoin’s price dropped right before we were about to enter that euphoric stage. What this price correction means is that the cycle will now have a little more breathing room to go higher over time. Ideally, we want slow and steady growth with small periodic corrections for a healthy market, but that’s boring, and this is Crypto, so we are going to the Moon and maybe even Mars and beyond! But on a serious note, I think the crypto market will mature and become more stable, like a volatile teenager that becomes more stable as they enter adulthood and old age. But right now, the crypto markets are definitely at the volatile teenager stage, where we will see the biggest percentage gains over a relatively short amount of time. In summary, this is a healthy 30–40% correction that frequently occurs in the crypto bull cycle, and I am glad that it happened.
From a technical perspective, bitcoin is sitting at recent support of $45K that was formed at the beginning of February of this year, and it is represented by the blue line in the image above. The current support is not that strong(since it was formed over a short period of time), and if it breaks, we will go to the next support, which was the previous all-time high of $40K, represented by the red line. This support is a lot stronger, but if it doesn't hold, who knows how far down we will go. Fortunately, the possibility of the $40K support breaking is very low because we are still in the bull market, and the new retail investors are starting to get interested and are just now buying their first fraction of a Bitcoin and Etherium. All the data models tell us that we are a little bit more than halfway through this bull cycle and have a lot more room to grow. The most conservative prediction is $100K Bitcoin by the end of the bull cycle, and we haven’t reached this target quite yet. Regardless of which support holds, we need to break the resistance of $50K, which is represented by the green line above. This will give confidence to the buyers that the correction is over, and prices will continue to climb higher beyond $60K.
Some bullish news: MicroStrategy has purchased another $1 Billion worth of Bitcoin. They announced this on Wednesday, February 24th. If they are buying at these levels, I would say that they are pretty confident that there is still a lot of room for growth. Coinbase just became SEC-compliant for being publicly listed on the NASDAQ. So, you would be able to buy Coinbase shares on Robinhood pretty soon; that will be interesting. Coinbase is also the company through which Tesla and MicroStrategy are getting their coins, so they are already worth a lot of money even before going public. There are also some interesting developments in the Etherium ecosystem. Etherium scaling solution called optimism is coming next month, and it should help increase the speed and lower gas fees of the network. I think many protocols will be adapting this update, and they will draw a lot of users to their platform since those users will end up paying less fees using their protocols.
In conclusion, I think currently there is nothing to worry about, and if you are new to crypto, this type of volatility will get psychologically easier over time, especially if you plan to be here long term. In 5 to 10 years, the prices will be astronomically high compared to today, and blockchain and cryptocurrencies will be a lot more integrated into our everyday world, especially the Etherium protocol. But only time will tell.
Disclaimer: None of this is financial advice. This article is purely educational.
Links to the articles in the order they were discussed in the third paragraph:
https://www.cnbc.com/2021/02/24/microstrategy-buys-more-than-1-billion-worth-of-bitcoin-adding-to-massive-holdings.html https://www.coindesk.com/coinbase-going-public https://cryptonews.com/news/scaling-coming-to-ethereum-in-march-optimism-announces-main-9344.htm https://www.coindesk.com/andreessen-horowitz-leads-25m-round-in-ethereum-scaling-solution
