Markets

Why Crypto Is Rallying Now

One year ago, on Dec. 16 and 17, 2017, Bitcoin topped $19,000. That was then.

Bitcoin (BTC) hasn’t been above the $4,000 level since closing at $4,143 on Dec. 2. It was trading at $6,300 on Nov 13, and analysts (including this author) were talking about the cryptocurrency having found its natural trading level, when the bottom collapsed the next day and BTC began a sharp decline, getting below $4,000 on Nov 24. After a brief bounce, it fell again, and on Dec. 15, just five days ago, Bitcoin bottomed out at $3,232.

This is now: Bitcoin is trading at $4,042, a gain of 25% in just one week. Is this a real rally, or is it just a dead cat bouncing?

To some extent, the rally is real. As a whole, cryptocurrency’s market cap has gained $31 billion since Monday, Dec. 17, gaining 30% as it went from $103 billion to today’s $134 billion. It’s impressive, but it’s still only a fraction of the year’s losses. Crypto’s market cap stood at $831 billion Jan 11, so the crypto market is still down 84% from its peak.

On that scale, Bitcoin is actually outperforming the crypto market generally. Including this week’s rally, BTC is down 79% from the Dec. 16, 2017 peak.

The other large cryptocurrencies are showing similar patterns this week. Ripple (XRP) has gained 9 cents since Dec. 15, moving from $0.28 to $0.37 for a 32% gain. Since its Jan 7 peak, however, XRP has lost 86%. Ethereum (ETH) is down 90% from its peak, even after this last week’s rally that saw the token gain 52%, jumping from $85 to $129.

Crypto analysts are busy looking for some reason behind this week’s sudden rally. Writing from eToro, senior market analyst Mati Greenspan says, “People are looking to reduce their exposure and closing out high-risk sell positions before the holidays, and this is creating upward pressure on market prices, which is ultimately resulting in a rally.” Greenspan’s analysis implies that cryptocurrencies may resume their slide in the near future.

Timothy Tam, the CEO of CoinFi, sees a positive spin in the current rally, and not just based on sudden gains: “It's certainly a hell of a lot more cost efficient to buy now. The hope is that the market has culled jumpy retail investors and, as regulators move in, we start to see some much-needed stability.”

So What’s Next for Crypto?

It’s too early to say whether this rally is real or not. Since I started typing this article, Coinwatch tells me that BTC is rallying from $4,042 up to $4,083. No matter what happens, at any scale, we’re in for a bumpy ride. From September to mid-November, cryptos were fairly flat; now it looks like their famous volatility has truly returned, at least for the near-term.

The cryptocurrency experts are divided, with predictions for 2019 ranging from grimly bearish to the exuberantly bullish. On the bearish end, former IMF head Kenneth Rogoff sees the cryptocurrency contraction continuing. Speaking specifically of Bitcoin, he says, “I think Bitcoin will be worth a tiny fraction of what it is now if we’re headed out 10 years from now…I would see $100 as being a lot more likely than $100,000.” Rogoff bases his prediction on the likelihood of US Federal regulators moving into the cryptocurrency market and quashing coins’ volatility.

Taking the bullish view, crypto analyst and Bitcoin journalist Osata Avan Nomayo sees Bitcoin recovering over the next two years and regaining its peak values. He believes the premier cryptocurrency will reach a stable trading level above $20,000 by the end of 2020. Nomayo is known in cryptocurrency circles for his earlier predictions on reductions in Bitcoin mining rewards.

One thing is certain. Crypto’s current, loosely regulated status, is not going to last much longer. The Chinese government set strong regulations in place in 2017; now, the US Congress may take up the issue. According to news reports from Cleveland.com, US Representative Warren Davidson (R – Ohio) is planning to introduce legislation in the House that would create a new ‘asset class’ for crypto coins, bringing them under Federal oversight. It’s interesting to note that Davidson made his plans public after the midterm elections, meaning he will need bipartisan support to move a regulatory bill forward in Congress.

Clearer regulation may actually benefit cryptocurrencies in the States. Right now, the coins are classed as securities by the Securities Exchange Commission (SEC), but as commodities by the Commodities Futures Trading Commission (CFTC). Additionally, the various states are also able to regulate crypto trading as they see fit. Federal-level clarity may give traders a better grasp of the market.

Finally, the US Federal Reserve has signaled that it may take a more cautious approach to interest rates in the coming year. Should the Fed slow down its rate-hike policy, Bitcoin and other cryptos are likely to gain, as investors look for higher – and faster – returns.

We’ll close with the most famously bullish of the Bitcoin predictions. John McAfee, of McAfee antivirus fame, has long been a proponent of cryptocurrency, and he stands by his famous prediction – made in July 2017 – that BTC will hit $1,000,000 by the end of 2020.

Author: Michael Marcus

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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