The Crypto Winter Bottom Has Yet to be Found
Two crashes in a single week...taking Bitcoin, already in the throes of a winter slump, down even further to $6,500. While the world’s top crypto by market cap seems to have recovered above $7,000 at press time, there’s no telling how long this rally will last. But, it’s becoming increasingly unlikely that anything can revive the bulls before winter is over.
Can this be considered normal volatility since Bitcoin was $10,000 last month? Well, possibly. But the October jump was due in part to positive comments coming from the Chinese government, and now – well, let’s just say China isn’t quite as in love with the crypto ecosystem as we thought.
So it’s all China’s fault? Not really, though the renewed pressure on exchanges in China isn’t helping much. Most likely, it has to do with a looming recession but a strong stock market, which could be more attractive to some investors as opposed to crypto.
Are we going to hit bottom anytime soon? As always, the answer isn’t straightforward, but at least there is some light at the end of this dark crypto tunnel. The 7-day chart is forming a classic bull flag, and miner capitulation seems to mostly be over.
Wut We Think: There’s a good argument to make that the bottom will even out at $4,500, despite any bullish indicators showing up – in big part to rising spreads and lowered liquidity on traditional exchanges. But once the year flips to 2020, and traders start setting their sights on the upcoming halving, Bitcoin’s fortunes are pretty likely to change.
Bitcoin Futures Are Surging Despite Crash
Crypto futures trading volumes are setting records...even as liquidity on traditional exchanges falls. This increase in volume is giving marginal trading platforms a significant boost in activity even as crypto prices slump across the board. And this is giving Bitcoin crucial information, with strong consequences for the spot market.
Why is the futures market doing so well? Well, in a lot of cases, no Bitcoin is actually transferred on the futures market. Some futures contracts are settled in dollars, not in Bitcoin. All of this together means that futures traders aren’t restricted by liquidity or as vulnerable to slippage as spot traders during a flash crash.
But what about Bakkt? Bakkt’s futures are settled in Bitcoin, but even volume there has reached record highs. As Bitcoin matures as an asset, and more and more institutional traders enter the market, risk-hedging via futures becomes crucial.
What did we learn from the futures so far? A few very interesting tidbits, such as the fact that hedge funds were net short on Bitcoin for the past few weeks, likely netting them a tidy profit. And we learned that one reason for the recent crash could be a consolidation of long positions.
Wut We Think: Futures play a critical role in pricing, and we see this playing out in Bitcoin in real-time, as traders adjust to using data from the futures market to influence their spot predictions. But the rise in futures coincides with a rise in crypto derivatives generally – as they provide the perfect way to enter the crypto market without actually having to risk holding cryptocurrency yourself.
Trading Spotlight: Exchange-Traded Fund
One big goal for Bitcoin evangelists has been the creation of a Bitcoin ETF. Proponents say that this move would prove that Bitcoin has ‘made it’ as a tradeable asset, and prove once and for all that the cryptocurrency belongs on the same playing field as equities or commodities. But so far, no regulatory agency has authorized one, due to regulatory concerns of market manipulation and insufficient investor protections.
Exchange-traded fund: An ETF is an investment vehicle, a fund that holds equities, bonds, or commodities, and generally moves in sync with the underlying asset, tracking the price. It’s traded on the stock market directly and allows investors to benefit from price movements of assets they do not own. ETFs are considered to be low cost and provide risk management due to the trader not actually owning the security, while still providing acceptable returns. For more information, check out the Monfex Financial Dictionary.