By Katharine Wooller, Managing Director, Dacxi UK and Ireland
Crypto has had a very odd few weeks; Bitcoin, the posterchild, corrected a whopping 46% in 13 days from the 10thMay onwards, only recently, at time of writing, recovering by 24%. The mainstream press took real umbrage at the crypto industry as a whole, suggesting irreversible momentum on a ski-slope to zero. Frankly, there was room for some correction – even with the recent setback bitcoin has still appreciated by a whopping 260% over a year. However, the size and speed of the correction does however leave even the most committed crypto fan scratching their heads for sensible conclusions on short-and-medium term strategy. Obvious questions include what caused the slide and whether is it a temporary dip.
Most of the analysis for bitcoin suggest a temporary dip before the continuation of a trajectory towards $100k USD by the end of the year. Indeed, recent events support this: the driving force behind the sell-off was retail profit takers rather than institutional investors, the latter of whom are happy and staying in. There is no dearth of “whales”, and this will likely maintain the price.
This enthusiasm is demonstrated by a number of big investors bought into the dip, with data suggesting that 34,000 bitcoins were brought over the two days this week coinciding with the biggest losses. In fact, the number of transactions rose to a record high on Thursday, constituting a 10x rise over 6 days. Throughout 2021 institutional buyers have shown real enthusiasm to taking advantage of corrections, particularly in late February and after the Coinbase IPO. This, to me, suggests persuasive evidence of commitment to the long term!
Let us not forget that crypto is a maturing market: it is no surprise it reacted adversely to a plethora of negative headlines.
Elon Musk tweeting that he would no longer accept BTC at Tesla, China and Iran suggesting they will clamp down on mining, tether’s recent audit, Coinbase share price getting hit, the IRS announcing they would focus on taxing crypto, all hit over a very short period. Equally let us not forget that crypto time is akin to ‘dog years’ – a week in crypto equates to three months in any other industry.
Investors have a surprisingly short memory. Some important votes of confidence in the last few days include Paypal allowing crypto withdrawals to third parties, and a rumoured appetite for crypto within Apple Pay. These good news stories seem to have already taken effect – glass node analytics show that the total number of crypto addresses sending bitcoin to exchanges has declined on a 7-day average, and similarly Bitcoin’s network value-to-transaction (NVT) signal has dropped to a 14-month low. Already it seems, therefore, we already have a classic bullish reversal and extruded the short -erm profit takers.
In conclusion it can be difficult for investors to strategize over such an eventful few weeks. It is important to remember that crypto is a choiceful industry; we now have over 10,000 separate coins. Let us not boil the ocean and assume that every coin is following bitcoin’s trajectory – indeed the recent weeks suggest an increasingly solid argument for altcoins.
Bitcoin’s dominance is waning, having dropped from 71% in January to 39%, with a number of sensible alt coins outperforming bitcoin, including Polkadot, Chainlink and Stellar. Despite Bitcoin hogging the headlines, expect to see the first mover knocked off its plinth, as with all investing diversification is key to limiting risk.
Psychologically any market downturn is tough going. Remain unemotional, think long term, diversify, and only purchase what you can afford to lose in such a volatile market. In my opinion, expect erratic trading conditions in the coming weeks, but a medium term very positive outlook!
