News and Opinions on a Little Crypto Recovery after a Rather Brutal Week
Bitcoin retook some ground yesterday after a rough week and broke $7.4k. Many alts reacted with price increases. If these levels can hold, or if Bitcoin can work its way back, things could start looking up for crypto again and, if not, we at least got a nice green day on CoinMarketCap out of it.
We are at now in a slightly cheerier price range than we have been for the past week (where Bitcoin spent a full week, Sunday to Sunday, dropping from $9k to $6.45k).
Sure, we have given back most of the gains from November 2017 – January 2018 at this point, but we are also sitting pretty at or around the levels we saw before the Bitcoin mania in November for most cryptos (if not higher for some coins).
That seems like a reasonable place to be given the journey thus far. We have had an overeager push to $20k over the Bitcoin futures “news” and “event” (always buy the news and sell the event in crypto). Also, a volatile and bumpy ride back down (where at no point did selling continue forever; which shows some resilience). Now we have an opportunity to reassess and grow again (maybe; if not this attempt, likely an attempt in the not so distant future).
If this was the worst of what the bubble had to offer, it might even inspire some hope in the market.
However, before we get too high on the hopium, we need to come to grips with the fact that Bitcoin’s quick rise to $20k and then its slow and painful tumble back toward $6k (filled with a few failed rallies and some brutal sell-offs) leaves us with many points of resistance to overcome. Not just in Bitcoin, but in every coin, and not just in the coins, but in the market as a whole.
Every time Bitcoin or another crypto went up from November forward, it created buyers who bought at that price and held through everything else. For each rally, there was a wave of FOMO buyers. Every buyer who has not already sold is now a potential seller.
Meanwhile, the nimble traders and those still sitting on profits from before November or from the last dip are also potential sellers.
We have a market full of potential sellers who are likely a bit more shaken and less likely to HODL then they were back in November 2017. In November, there was a sense that 2014 wouldn’t happen again and we might go straight to $50k; today there is a sense that any resistance level could lead to a quick sell-off.
This presents a problem, in that what we need to rise up again is another wave of buyers (not a bunch of traders and HOLDers looking to get out at resistance levels and buy support levels).
Meanwhile, although our memories for pain are short, November 2017 – March 2018 was an intense and long time, and I have trouble thinking that the world has fully forgotten about it yet; it was like literally 2 days ago at this point.
At Thanksgiving, we went home and told stories of riches from the summer-fall, at Christmas,, we told stories of how alts were the new Bitcoin. We told our friends and parents, “just HODL.”
Then, on Easter, many went home and told stories of taking losses, and their parents and friends told them about the dot-com bubble.
The average person, the one who ideally any HOLDer wants to enter the market, and more conservative institutional investors, who will buy and hold and not just speculate, are both likely to wait on the sidelines until some of the volatility leaves the market. This is especially true since many people know about what happened in 2013 – 2014 and now thus far in 2017 – 2018.
Crypto is exciting, and one should not rule out new money coming in if trends can stay positive or even stagnant for a bit.
However, a little money coming in or back in a FOMO induced panic over a quick price jump or two in a short period isn’t likely to take us back to $20k. Rather, it is likely only to catch a small wave of risk takers and create another group of sellers if the levels don’t hold.
This puts crypto in a catch-22. Sharp downward movement is likely to produce buyers at some point, but it will also shake confidence further. Sharp upward movement is likely to create FOMO buyers, but be unsustainable. Yet stagnation is boring and offers only one thing to the big players in the space (a chance to accumulate at that price).
Essentially cryptocurrency is in a very hopeful spot right now, but it is also in a difficult spot, because it has to now earn back some of the trust that was lost.
It needs to convince would be sellers not to take profits at the next resistance level or panic sell if the next support fails. AND it needs to show that it is done tumbling down and bleeding out to inspire potential buyers who will stay in the market to approach or re-enter the market.
That isn’t going to be easy, but it is possible, and there is a precedent for it as can be seen on the various charts of various cryptocurrencies (we see lots of bubbles and busts and recoveries in the history of crypto, generally with a very long-term upward trajectory).
Now, for those who regret not buying that last dip, and instead are thinking about following their FOMO and buying $7.4k Bitcoins, here is a general risk management tactic one might employ:
A sensible way to approach a market like this (a bear market of a volatile asset with a short-term bullish trend) is to either sit on the sidelines and watch for resilience to enter, or to build a position by buying gradually over time.
These next few weeks will be telling for crypto (the next few days could be epic, but the next few weeks will be the tell), watching April unfold or gradually entering the market over the month is not an unreasonable move. I would, however, say this: If crypto is going to do well over time in a sustainable way as it did in 2017, you’ll have some time to build a position in the market. If on the other hand the recent pattern repeats and we see yet another failed attempt at recovery and more selling off after a quick attempt to jumpstart crypto, small positions now can be offset by more small positions later.
Those who approach the market with caution (inspired by the recent price movement, but cautious from the overall picture since November) are likely to have a fun go of it. Those who jump in without careful consideration based on the price of the day are potentially setting themselves up for a tense ride.
There is a good chance that those who bought the dip and start buying now will do well. However, it’s important to look at the chart since January. Realize that we are still in risky territory for the time being even though we hope we are on a path that looks like it could break out of that. We are not in the clear.
Although we might be risk takers ourselves, not everyone is, and it is those people who we will need to enter the market to see a repeat of 2017. So, fingers crossed crypto has a stable and steady week filled with consolidation, nice little gains, and a serious lack of panic selling. If not that, then fingers crossed we find the bottom swiftly and can begin the next phase in earnest soon.