Can you still earn money on Bitcoin? - cryptocurrency market overview

Bitcoin recently it has made a name for itself thanks to its solid growth, among other things. In the previous sessions, however, there was a solid sell-off and certainly the part of the market that did not make purchases may see an opportunity to enter the position. At the outset, it is worth quoting Danny Scott, the British boss Cryptocurrency exchanges CoinCorner. He stated on Twitter that bitcoin has entered a period of volatility crisis. Is it related to the withdrawal of some investors from the market after the recent declines? How does this relate to the broad cryptocurrency market? We will try to answer this question in the following review. 

Check it out: How to buy Bitcoin? Step by step guide

Bitcoin Has Become A Long Term Investment?

Is it really so? Where did this conclusion come from? First of all, it comes from the words of Scott himself. Investors are increasingly starting to withdraw cryptocurrencies purchased on the stock exchange - in particular Bitcoin. These words were not uttered without coverage. They are based on the recent movements in the digital asset market, which were withdrawn from exchanges of $ 700 million. 

Another interesting argument that supports this tendency is the number of addresses in BTC with a non-zero balance. This number has been gradually increasing recently. At the moment it is achieving the result 32 899 276 and is constantly growing. This is a record number. Virtually a week, over a thousand new crypto wallets were added. Where did such movements come from? Should we join this trend and count on a repeat of the 2017 rally? Yes and no. It is worth analyzing the geopolitical situation there and comparing it to the present one. 

Who is hunting cryptocurrencies?

The 2017 rally was driven mainly by FOMO. FOMO is nothing but fear of losing an opportunity, from the English language fear of missing out. It is a kind of phenomenon where we are afraid that this one and only moment will pass before our noses. The demand for Bitcoin in 2017 was mainly based on the herd behavior of investors from the proverbial street. Everyone talked about Bitcoin at the time, even those who had never been associated with the financial market before. At this point, the cryptocurrency bubble was so large that some of the larger wallets began to realize profits. 

What is the situation now? In my opinion, it is best described by a comment from the JP Morgan bank, which Bitcoin called digital gold. The demand for cryptocurrencies now largely comes from the investment outlays of the so-called smart money. Large financial institutions have noticed the potential of the digital asset market to protect cash in times of its strong depreciation. The weakening and excess of cash in the market result mainly from the current economic and geopolitical situation. Recently EBC announced an increase in support to EU economies hit by the coronavirus pandemic. Another fiscal package is being prepared in the United States, and Federal Reserve he is already rubbing his hands for the next reprint. High inflation supports (before potential future rollover at higher interest rates) the possibility of budget borrowing, but also (as a silent tax) depletes the average citizen's wallet. Hence, cryptocurrencies have become a good alternative in addition to gold.

Be sure to read: The KNF still warns against cryptocurrencies

Is the last discount a chance for profits?

Opinions are of course divided. Some see the last discount as an opportunity to buy or buy BTC at the price below, while others fully indulge in the bearish mood. We will quote Ki Young Ju - CEO of CryptoQuant to sweeten the bulls. In a recent interview, he said:

“When it comes to short term price forecasts, I think the most important figures are supply and demand. I think this decline started with bitcoin ... whales that wanted to keep their bitcoins on exchanges, making them readily available for sale orders. "

He strongly believes that Bitcoin's ATH will break new heights in 2021. For people who have little or nothing to do with ATH (All time high) cryptocurrencies, this is nothing but the highest price so far. Translating this into traditional markets, we are talking about the maximums of a given financial instrument. 

Fundamentally, we have a very good period for possible purchases of cryptocurrencies. Excessive amount of cash in the system and a realistic vision of its continuous increase create very good conditions for investing money in assets protecting its value. The low interest rate environment, which is closely related to the debt market and the entire credit system, also positively supports digital assets. As a result, overliquidity and a large supply of money create interesting opportunities for the cryptocurrency market. Fundamentally, in the long term, an uptrend should develop sooner or later. 

There is a catch ...

Having interesting opportunities for appreciation and increasing the capitalization of the digital asset market, we also have the other side of the coin in the form of potential threats. One of them is pure market competition. Gold sponges up cash like a water sponge during market ups and downs and when the purchasing power of money is extremely uncertain. It is true that the profile of an investor investing his capital in gold and the profile of an investor purchasing Bitcoin is completely different. The shift of some Smart Money towards cryptocurrencies also creates a real chance to "commercialize" this market. By clarifying this idea, there is a real chance of trying to keep BTC quotes within certain limits (ceiling - floor), which we deal with in the case of currencies. The widespread use of crypto, the more it can accelerate this process due to the need for greater stabilization of the exchange rate. 

Apart from the above-mentioned speculative aspect, the macroeconomic risks related to the cash market will be of fundamental importance. Currently, the inequality between digital assets and cash is tipping in favor of cryptocurrencies. However, if money stabilizes and the factors supporting the end of the Bitcoin Eldorado increase, the transfer of capital may again favor physical money. Often, such an impulse for a larger sell-off is the approaching or breaking of ATH, which we have seen recently. 

Bitcoin technically

When looking at the Bitcoin chart from a technical point of view, we currently have two appreciation scenarios to play. Despite the sell-off, we are close to important support and resistance points where the quotes may stabilize. Testing and "accepting" a higher price could open the way for BTC to increase further. 

Bitcoin chart, H4 interval. Source: Trading View

In the chart, I have presented two appreciation scenarios, including two key support / resistance levels marked with blue lines. The green and red places are the price areas that are at the most recent confirmed lows and highs that break a trend. Bitcoin is presented on the 4H interval. Generally, we are in a really interesting place. Price is testing the last solid support, going into a correction in its vicinity. This is a good time to place orders waiting in both directions and take a slightly stoic attitude. Quotes will break out due to the accumulation of orders. Given that BTC is in an uptrend, I am more hoping to pull it up from two potential levels. Current (if there is no profit taking) or the next next support located at the levels of 15.