The long crypto winter and the bear market look like it's over. Since the spring, a bullish turn in the market now leads the pace. Can we learn why and try to apply this to other market cycles?
One of my favorite resources (and where I am one of their community analysts), Messari outlined 4 possible explanations of the rally we are seeing. Here it is in a tweet storm:
— Messari (@MessariCrypto) June 26, 2019
Here are the 4 reasons.
- Bitcoin is reacting to global macroeconomic events
- The Federal Reserve is going to have a more expansive monetary policy
- Facebook's Libra Coin
- Technical Analysis (the charts and trading patterns)
Let's look at these in some more detail.
Bitcoin Reacting to Global Macro Events
In their tweet storm, Messari notes that China devalued the yuan due to potential US-China trade war fears. Also, the supply of Tether has been expanding. This is important because many around the world including the Chinese use Tether as the fiat currency on-ramp to buy Bitcoin.
In late April, Tether issued another $300 million Tethers leading to an all-time high in supply of $2.8 billion. Bitcoinist wrote a nice piece on this outlining how both price and volatility increase when there are more Tethers in the market.
The Federal Reserve is Expanding Monetary Policy
President Trump wants the Fed to cut interest rates. He also wants a devaluing of the dollar to match what China is doing and now the EU, as reported in this Financial Times story. CNN reports that Trump said the Fed is 'acting like a stubborn child for refusing to pursue easy money policies.'
Easy Money=More Money Printed=Devalued Dollar=Higher Bitcoin Price due to its fixed supply
CNBC reports that the markets are currently pricing in 4 interest rate cuts between now and next April, which should mean that they will be printing more money. This new liquidity will help push Bitcoin prices higher too, says Messari.
Facebook's Libra Coin
Facebook is issuing a cryptocurrency called Libra. I've written extensively about it in my last 2 Crypto News Over Nonsense newsletters, which you can find:
The basics are this. FB wants to develop a global payments system that its 2.4 billion users can access and use. Central banks from emerging markets and retail banks in the West are among the groups potentially threatened by this coin.
But as Messari says in their tweet, FB brings added legitimacy and potential mainstream adoption for cryptocurrencies in general. And after some try it, they will inevitably move to a better solution: Bitcoin. Messari believes, and I do too, that this is TREMENDOUSLY bullish for Bitcoin.
Here are a couple of other expert opinions about FB and the Libra Project:
Libra sounds fairly well designed as a permissioned system, but it is facing quite a few long-term challenges. Oh, and it's not a blockchain. https://t.co/B3pRC8860J
— Jameson Lopp (@lopp) June 18, 2019
While Facebook's Libra doesn't compete against any open, public, permissionless, borderless, neutral, censorship-resistant blockchains, it *will* compete against both retail banks and central banks. This is going to be fun to watch.
— Andreas M. Antonopoulos (@aantonop) June 18, 2019
Both threads and the comments are worth a read.
Technical Analysis (Reading the Charts)
Lastly, Messari reports there are technical analysis reasons for the rally. The market had been oversold for some time meaning all the selling took place and there are few sellers left who haven't sold their coin. As we discussed here when I went over the Adamant Capital Research Report, institutions have been buying. Many of the rest of us have been HODLing now that we think the worst is over of the bear market. The combination of holding and buying leads to price increases.
For those that don't do technical analysis based trading, Trading View offers perspective in the form of many popular TA tools like Moving averages and oscillators. At the moment, nearly every common Simple Moving Average and Exponential Moving Average indicates a buy signal for Bitcoin.
Meanwhile, oscillators, which are meant to filter out some of the day to day noise and show the real pattern, are showing buy signals too. For another view, FX Street shows what's known as a bullish flag breakout meaning a bull market still exists with a breakout to the upside form the current pattern that resembles a flag.
So there's a good chance that this rally might have happened just because of all the sellers have finally sold and institutions started buying.
What are you doing? Are you buying more? HODLing on? Taking some money off the table?