What's next with the price of Bitcoin? Huge drops in the cryptocurrency market [Analysis]

2019 year is not successful for cryptocurrency holders. Cryptocurrency prices have reached historical heights at the turn of the year and have been falling regularly since then. The price of Bitcoin fell by 73% and the most important of the cryptocurrencies was doing relatively better. Other currencies, including the popular Ethereum, Dash and Litecoin, were cheaper by around 90%. In this situation, should investors be interested in the possibilities of earning both in increases and decreases in cryptocurrency prices?

$ 6000 broken, is it the capitulation of recent crypto-bulls?

It is fair to admit that interest in cryptocurrencies during the 2018 year has been falling just like the price of Bitcoin. In July, we had the last attempt to increase, but it ended in failure. On the other hand, for a really long period of time, the level of $ 6000 was like a concrete floor for the price of Bitcoin - prices did not rise much, but they did not want to drop lower. It may have seemed that the market does not accept a lower price. The downward move was provoked by the seemingly trivial information from the point of view of the entire market - the Bitcoin Cash network fork. Of course, the price of BCC itself collapsed, but from the point of view of Bitcoin or other crypts there was previously a lot of other information that may seem seemingly much more unfavorable, such as theft of coins. Anyway, milk has spilled - the BTC price fell sharply below $ 6000 confirming only that we are in a deep downward trend.  

Classic technical game?

It may sound quite ironic, but in the breakthrough of such an important level and textbook reaction the Bitcoin market in a sense has confirmed its maturity. Such technical games are normally a treat for investors - the demand and supply zones are the basic information for traders operating the graph, who after the reaction expect them to move accordingly. 

Recently, Bitcoin's price has repeatedly accepted the direction determined by technical analysis. A prominent example are the declines after defeating $ 6000. Investors can earn money from falling prices using CFDs. Source: xStation5

In 2017, it was often possible to hear that crypto quotes, including BTC itself, do not accept any canons of technical analysis. There were no zones, channels, lay-ups or candle formations. The price often behaved incredibly randomly, partly reflecting the very turbulent nature of that market. Now the lava has cooled a bit, some of the investors attracted by the price hill have already gone and the market has become a bit calmer. Further, price changes can be greater than on the stock exchange or the forex market, but they have a somewhat more systematic character. Importantly, for an investor using technical analysis, the direction in which the price moves is of secondary importance. Most formations work with both rising and falling prices. It is worth having the opportunity to use any traffic that seems credible to us.   

Contract market - only what?

At the apogee of cryptocurrency, critics have repeatedly appeared, suggesting that the lack of short positions distorts the price of Bitcoin and other coins. The fact is that after the introduction of futures contracts by CBOE and CME, the price for some time grew dynamically, but not so long afterwards we had a price peak. In my opinion, however, it was not directly related to the introduction of futures, which are not attractive enough due to many restrictions. The high security requirements and large denominations have meant that futures markets have so far not played a major role and there are no signs that this will change. There are therefore CFD contracts for investors interested in using price movements. They have many advantages. In the first place, they give the opportunity to open positions aimed not only at the growth, but also a drop in prices. A short position is earned when the price of Bitcoin or another cryptocurrency decreases. The contracts are also highly scalable, maybe for example, include them into a part, say 1 / 100 coina. Thanks to this, we can better manage the risk of our investments. Going further, the contracts are safe as much as our broker is reliable. If we are dealing with a large, strong capital and regulated broker, our funds can be safer than a crypto portfolio. The ESMA regulations have slightly reduced the leverage capability, but it is still possible to use it on the 2: 1 scale. Therefore, if we conclude a position with the value 10 thous. zlotys, it is enough for our deposit to cover 5 thousand Golden.  It is worth noting that with CFD contracts you can also secure at least part of our position in cryptocurrency portfolios. 

This chart leaves no doubt that in recent months traders betting on Ethereum's declines could have made much more money. Is this the end of this coina? Absolutely not - despite the loss of 90% of the value from the peak it is still almost 4 more expensive than the spring 2017. Source: xStation5

What's next with cryptocurrency prices?

The cryptocurrency market was often compared to the stock market of online companies, which survived an unprecedented boom in the end of the 90 years, and then at the beginning of the twenty-first century, their prices collapsed. However, today we can not imagine life without Internet. Many companies have collapsed, but the technology has been a huge success and the companies based on it are now the kings of exchanges. In the case of cryptocurrencies we have the phase of collapse behind us, but we do not know how ultimately technology will be found on the market. Do I regularly pay with cryptocurrencies? Are my friends doing this, my family? Can I pay Bitcoin for a roll at a local discount? It seems that the period of global acceptance for cryptocurrencies has not started yet and it is still unclear if currently the most popular cryptocurrencies will be those that will make the binchain technology happen. It is, therefore, worthwhile to ensure the possibility of earning price movements in each of the parties or at least securing your currencies held in your wallets.  

Dr Przemysław Kwiecień CFA
Investment Adviser No 696 license
Chief Economist at XTB