After A Long Winter, Is The Crypto Summer Finally Upon Us?
The crypto haemorrhage appears to have been halted this week with Bitcoin and other cryptos seeing gains, but the question is - how long for?
This has been the best week for Cryptocurrencies in a long time - in fact the market has
had a great week. Bitcoin has gained almost 18% according to Coinbase charts with Ethereum up 22% and Litecoin on almost 20% gains for the week. Ripple also saw significant gains this week -
up 38% as reported by Coindesk.
Last week I noted the worrying nature of losses experienced by Bitcoin and suggested
further bearish markets could end-up pushing the price of crypto’s headline act to drop to
the February low of $6 000.
While Bitcoin clocked a one-month high of $9600 on Coinbase it is trading at just over $9,300 at
current time of writing. As a result, there remains a possibility that BTC’s bear market has
yet to fully end. Technical charts indicate that for such a move to materialise BTC needs
to move above the key $8 500 resistance. Furthermore given that BTC has yet to overcome the descending trend-line established in mid-December there is still work to be done.
If there is a high volume break above the key $9000 resistance it would confirm a longer-term move to a more bullish trend. As noted on Coindesk, a pullback to around the $7000 mark could also materialise although with the likelihood such a move would be shortlived.
So why the upturn?
Investor concern over the continued regulatory scrutiny not least from the U.S. and China
- who have upped their efforts to police the industry - have been a major source for
reduced institutional demand. This is not to mention the blanket bans imposed by social
media giants Facebook, Twitter and Google to curb the malpractices that have continued
to dog the industry.
So why now is there this upturn in prices? Speaking to Bloomberg, John Spallanzani, a
portfolio manager at Miller Value Partners, noted that despite these setbacks general
news flow has turned less negative, as well as the end of most tax-related selling in the
U.S. When you add the accumulation of a sizeable short position to this, he claims “a few
large players took note and once we broke above technical resistance it was off to the
Tom Lee of Fundstrat Global Advisors agrees with this analysis of the influence of tax
related sell-offs in ferreting downward pressures on the price of bitcoin and other cryptos.
He said to Bloomberg “we think capital gains related tax selling played a factor in the
recent weakness and these pressures should be alleviating soon.”
Furthermore the industry appears to also be gaining confidence with the entrance of
larger investors into the market. One notable example is George Soros, who as claimed
by various sources, is reportedly investing in Bitcoin - despite his recent dismissive
outlook on Crypto at Davos in January.