In the last 10 days the cryptocurrency markets have suffered a massive sell-off across the board.
There are a number of reasons that have led to very bearish feelings on the market, but seeing red has been difficult for many. Because the value of Bitcoin and numerous altcoin continued to decline to depressing levels, a certain amount of panic ensued.
Cointelegraph has contacted various industry professionals to explore the reasons behind the recent market crash and what to expect in the weeks and months ahead.
Main factors to consider
To understand why the markets have plunged into red, we need to explore the various socio-economic factors that have had a negative effect with investor sentiment in traditional markets and cryptocurrency.
The renowned Wall Street investor, Tom Lee, provides a careful analysis of the current cryptographic climate.
First of all, Lee indicates the recent one Bitcoin cash fork it has been an important point of discussion in recent weeks and the growth of the interest rate war has caused serious uncertainty in the market. Last week Coinshares CSO, Meltem Demirors, said this led institutional investors to withdraw money to avoid the risk and uncertainty around the hard fork.
The controversial dispute in the Bitcoin Cash blockchain took place on November 15, with the consequent creation of two competing chains such as Bitcoin ABC and Bitcoin SV. As a result, the value of BCH has suffered as much as the rest.
In addition to this, Lee believes it regulatory pressures they played a role in the bearish atmosphere, underlining the decision of the SEC to institute the first withdrawals against a pair of Initial Coin Offerings (ICO) that were thought to be actually offers of securities. Another contributor to negative feelings are the reports of new investigations in the affairs of the controversial by-laws of Tether (USDT).
Global pressures they also took their toll and Lee underlined the trade tensions, the central banks that strengthen policies, as well as the Brexit which contributes to the decline in market liquidity.
"Does this mean that Bitcoin is broken?"
The prospects for traditional markets have been equally gloomy, with analysts predicting a "flash crash" looming in the wake of a sell-off in the cryptocurrency and oil markets. Lee summarized this as a sign of the times:
"Markets around the world are fragile and panic and sentiment are playing a disproportionate role right now, does this mean that Bitcoin is broken? No. The case of use is still there, but in the short term, the panic is panic ".
EToro senior market analyst, Mati Greenspan, echoed these sentiments, underlining the downward trend in various sectors global equity markets in its daily updates on the market in the last days.
5 days composite chart of the NASDAQ. Source: Yahoo Finance
S & P 500 5 day chart. Source: Yahoo Finance
Dow Jones Industrial Average 5-day chart. Source: Yahoo Finance
In combination with a recent breakout and the central banks tightening their belts, the markets have seen a strip of red. As reported by the Wall Street Journal mid-week, governments may have to boost their economies while central banks tighten their belts.
Economic tensions they have also impacted global trade and higher interest rates are not helping the situation, according to the Organization for Economic Cooperation and Development.
As Greenspan explained, all these factors contributed to stress on multiple markets.
"There are a lot of collateral stories right now, but I think the main drivers are the technical breakout we saw last week and the global macroeconomic cycle that is currently affecting the stock market, and we have seen abundance in all of us in 2017. the markets because of the central bank's monetary policy: Now that central banks are raising rates again, money may be in short supply and people are taking away many of their investments from the table. "
Low commercial volumes and high uncertainty
While the Bitcoin Cash fork has been identified as an important factor in this recent recession, others have pointed to the fact that the crypto markets have shown signs of a serious decline in recent weeks.
As reported earlier by Cointelegraph, analysts have noted that Bitcoin was struggling to move to a bullish support. The pre-eminent cryptocurrency was not able to overcome the lower regions of $ 6,000. Volumes and commercial activities were low and uncertainty increased, leading to aggressive selloff.
Gabor Gurbacs, digital asset strategist and director of VanEck, told Cointelegraph that traditional markets have been corrected because companies seemed to consolidate by the end of the year.
"Over the past month, however, Bitcoin and digital assets have remained fairly stable, while the equity and bond markets have undergone a significant correction.The recent turmoil is due to the combination of some systematic year-end sales (which are closing books). to companies) and a mess around the Bitcoin Cash fork. "
In line with this analysis, Anthony Pompliano, host of popular podcasts and "Off The Chain" newsletters, has tackled current market problems in recent days. Responding to Cointelegraph, Pompliano highlighted three factors driving the recent recession:
"The technical data show a more descending movement, the historical analysis shows that we have to go further, and the psychological argument is that there is not enough blood in the streets. Add the pressure to sell the funds and ICOs, you get a perfect storm for a further market downturn. "
In a nutshell, low commercial volumes and high uncertainty caused a sell-off that led to further panic sales. Summing up this succinctly, respected blockchain entrepreneur and industry consultant, Vinny Lingham, offered Cointelegraph a collecting analysis of the current climate:
"It's a downward trend in the bear market that has characterized much of 2018. Bitcoin Cash's controversial recent spike, combined with regulatory uncertainty over ICOs with recent SEC decisions against some symbolic sales, added to the sentiment general negative ".
A short-term perspective
Price forecasts are notoriously difficult to achieve in cryptocurrency, but analysts are able to capture a lot from price movements and graphs.
According to Greenspan, it is not easy to make assumptions about what the markets will do in the next six weeks and believes that things could go either way:
"It's impossible to say for sure: now that Bitcoin has broken the key psychological level of $ 5,000 the next logical level of support that we can spot on the chart is not up to $ 3000. It does not necessarily have to get there anyway. very bullish signal.
"I feel the last panic sellers are now showing their hands, there are a lot of cryptotraders who are happy to keep fiddling even if we see lower prices, and big incoming financial institutions are probably already accumulating at these prices" .
Pompliano offered a more philosophical perspective in his latest newsletter, emphasizing the fundamental aspects of Bitcoin as a saving grace that can not be controlled or imposed by any single entity:
"It is important to remember that Bitcoin is not a traditional resource, it is not a monetary policy decision that will be the catalyst for a recovery, the government can not consider it too big to fail. intervene and stop the trade Bitcoin lives and dies alone.
"While this may be scary for traditional market investors, this is the attraction for true crypto-believers." They understand that the asset will have volatile fluctuations on a frequent basis.They know that there are few synthetic protections in place. for investors: Bitcoin is the last test: how much belief do you really have? "
Even at current levels, Lee has produced quite optimistic prospects for the cryptocurrency markets before the end of the year. Lee reiterated his $ 15,000 Bitcoin price forecast at the start of this week, even against deeper lows. Lee believes that further regulatory clarity will also alleviate uncertainty, which has occupied space for most of 2018.
The co-founder of Fundstrat believes that institutional investors will be the driving force behind a market recovery. This will be guided by the planned launch of Bakkt in January 2019, a digital asset platform created by The Intercontinental Exchange (ICE), the operator of the major global stock exchanges, including the New York Stock Exchange (NYSE).
The bearish climate has brought Lingham a far more conservative outlook leading to December and the new year. He said it was difficult to see Bitcoin exceed $ 6,000 in 2018 and emphasized the need for blockchain projects to create widely usable solutions:
"The market must find and demonstrate more use cases, companies that are building on top of the blockchain must demonstrate real usefulness.The industry must start to show the adoption of technology beyond the pilot projects in 2019 and create added value.The market has had too many pipe dreams and Lambos in the last 2 years.The climate may change again companies with solid use cases emerge from their development cycles, gain traction and they show a valid company value to make the difference: those who will not hit these milestones will continue to be wiped out ".
Starting from November 22nd, cryptographic markets seem to have stopped their drastic slide, with cryptocurrency prices still flickering, but with only slight losses.