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Crypto – wild price fluctuations signify pronounced growing pains

  • Cryptocurrencies are experiencing high levels of price volatility
  • Sharp falls in recent days driven by political opposition
  • Crypto bulls still looking to buy the dips
  • From FOMO to existential fear in five days
  • Managers of Facebook’s Libra project to give statements to Congress 16th and 17th July

Even by their own standards, cryptocurrencies are currently experiencing pronounced volatility.

One key determinant of their value is the extent to which they are considered by the mainstream user to be legal tender. The process of finding an answer to that question is very much in play at the moment and as opinion shifts, so do prices.

Source: TradingView

A whole list of price support levels have been breached in the last week. Key levels mentioned included $12,900 – the upper line of one-day Bollinger Band, $12,400 – 23.6% Fibonacci retracement monthly and $11,400 – 38.2% Fibonacci retracement monthly. Price is currently trading in the $10,700 area (Source: Bitstamp), having started the week spending the first part of Monday morning trading under $10,000. The reference to the $10,000 gives a little colour on how volatile price is at the minute. When ‘big numbers’ with psychological importance come into play then it’s a sign that emotions rather than technical indicators are driving price action.

Source: TradingView

The ‘Ideas’ section of the Trading View website hosts a great number of ‘analyst’ notes. As is ever the way with bitcoin and indeed other cryptos, there are a lot of parties ready to share their thoughts. Whilst the asset class may be new and alternative, some of the theories behind the trading strategies take a textbook approach. The note by Goldbug1 below interprets recent price moves as classic ‘price consolidation’. Only time will tell, and whether investors want to join these traders and buy the-dips is another matter. FOMO has been a significant factor in the recent price move and the full effect of this on price is hard to gauge.

Source: TradingView

Goldbug1 wrote:

“I am leaning more towards this is a flushing out of late longs. You know those that bought the rocket ships at 12k and are now realizing they bought into the FOMO? The ones that are easily swayed like a leaf in the wind.”

Source: TradingView

Another long strategy idea is detailed by VaidoVeek. It is looking to make an elegant entrance and works off building a position at prices lower than current levels:

Source: TradingView

High probability short-term BUY setup between $8,700 – $9,000! 
Here are the criteria:

1. Parallel channel lower trendline should act as a support level.
2. Daily EMA 100 should work as a supporter.
3. Previously worked resistance level on May 27-29 starting to act as a support level.
4. AB=CD from the top and the D point is exactly inside the blue box.
5. The round number $9,000 can play an important role on the list of the criteria.
6. The black trendline, it has worked as a support level, it has worked as a resistance level and hopefully, it works currently as support. It is not the textbook trendline but definitely, it adds a bit strongness into the reversal area.
7. Fibonacci extensions.

Source: TradingView

Source: TradingView

The spread between BTC/USD and altcoins has moved out during the recent price correction. The below chart shows the performance of three coins over the period of the last month and how the stronger ‘brands’ have lost the least. Whilst the price correction will of course be painful to all holders of long positions, the spread move does provide support to the argument that if any of the cryptos are going to cross the watershed to universal acceptance, then it is BTC.

Source: TradingView

 

Mainstream day-dream?

Whilst the market may well have overshot to the upside, the trigger for the correction was the comments made by President Trump and others in a position of authority. Their comments challenged the long-term acceptance of cryptocurrencies and were widely reported in the crucial North American market.

Source: CoinDesk

Writing on CoinDesk, Michael J. Casey is clear that it’s not the actual substance of the tweet that matters, it’s the fact that President Trump engaged in the debate at all. In so doing, he has actually provided the cryptocurrencies with more credibility. If this is the case, then the actions of other authorities around the globe are playing into the hands of crypto-bulls.

Reports are surfacing that India will ban all crypto apart from the digital rupee.

“An unverified document published to Scribd by tech lawyer Varun Sethi on July 15 appears to reveal a draft bill entitled ‘Banning of Cryptocurrency & Regulation of Official Digital Currencies’… The document reads: ‘No person shall mine, generate, hold, sell, deal in, issue, transfer, dispose of or use Cryptocurrency in the territory of India’.”

Source: Cointelegraph

The alternative view is that if the authorities follow through on their actions and ban crypto trading, then the current price, even after the recent correction, looks like something future academics will reference when discussing asset bubbles.

Whilst the market turbulence continues at pace, there are continued reports of support for the cryptocurrencies at ground level. The Next Web reports:

“The local council of Richmond Hill voted on July 10, 2019 to enter into an agreement with a cryptocurrency payment services provider to let residents of Richmond Hill pay property taxes in bitcoin.”

Source: The Next Web 

What is interesting is that the council of Richmond Hill was able to refer to another council having already successfully set up a similar process:

“Our Council was aware of Coinberry’s successful implementation of a digital currency payment service with the Town of Innisfil.”

Source: The Next Web

Source: CoinDesk

Today and tomorrow (16th and 17th July), the US Congress and Senate will host hearings on Facebook’s libra cryptocurrency. David Marcus, head of Calibra, will testify to lawmakers on the crypto project. Facebook’s fiat and government bond backed cryptocurrency has characteristics that are quite different from bitcoin but good news for libra is widely considered a net positive for bitcoin, both holding anti-establishment credentials. It’s hard to guess the outcomes of the Facebook/Congress meeting, the only thing anyone can say with any certainty is that the high volatility levels don’t yet look like subsiding.

 

An element of risk

The price movements at the moment are dramatic even by crypto standards, meaning this may be a good time for traders to sit on their hands. The old adage goes that ‘sometimes the best trades you do are the ones you don’t actually put on’. The movements in the crypto markets are dramatic and make for fascinating research. They’re also a good indicator for asset markets in general.