Bitcoin, and the wider crypto market in general, has staged a major rally in the last few days. The largest crypto by market cap, Bitcoin, gained ~31% since January 1. In the same time, alt-coins Ethereum, Solana, Polkadot and Cardano gained 35%, 157%, 52% and 53% respectively.
While crypto as a class of tradeable securities trades much more volatile, such a rally stands out to the drab down-trend that had afflicted the universe of coins lately.
I am not an expert on crypto by a long shot, but from what I can tell is that the last few months show an eerily similar succession of events one would expect to see around at a major market bottom in equities.
There were the classical multiple blowups of over-leveraged funds and brokerages (e.g. Three Arrows Capital, or Voyager Digital), Terra/LUNA blowing up, and DeFi lenders running into loan and liquidity problems (e.g. Celsius). People were subjected to a never-ending stream of bear news, culminating in magazine covers from a barrage of popular outlets depicting the epic “downfall” of crypto.
A more than one-year long to speculators painful and frustrating down-trend has shaved off 50-90% of value from many of the prominent coins, and ended the future of others altogether. The stark volatility that started as early as spring/summer 2021 destroyed many a portfolio and short-term traders account. Speculators are disgusted with their losses, a large number of players never to return to the market (at least not before the next bubble).
The last straw came with the Scam-Wankman-Fraud blowup of FTX, and the seismic waves it sent through the industry. FTX’s blowup caused panic selling in most coins, liquidity problems for more crypto funds and DeFi lenders (Orthogonal, Auros Global, BlockFi, Maple, etc.), and most importantly, cold sweat fear.
However, the latest December/January rally has been accompanied with the most massive volume accumulation on the upside that crypto has seen for years. Follow the trend, and ignore opinions.
Of course, its start was almost timed to the day by media pundits such as Jim Cramer again professing the end of crypto publicly. He specifically singled out Litecoin and Solana, two coins which thereafter had massive rallies. Litecoin has technically been leading the market since bottoming in June ’22 – almost 5 months before the rest of the crypto world.
This series of events is almost step by step what has been seen in most past crypto bottoms, such as the 2014 bear that started with the Mt. Gox hack.
This is not to say that I will plunge into buying anything here, in fact more displays of strength are required. It is hard to expect anything more negative to happen than the FTX collapse, but nothing is for certain in the markets. Keep watching for other hickups, including Gemini and Genesis that are facing some problems lately.
If this rally fails, rolls over and below the Lows again without finding support, look out below.
Missing now for crypto to technically start heading up again is for all the large-cap tokens including Bitcoin, Ethereum, Cardano, Solana, Ripple, Polygon, Polkadot and others to digest sideways for a couple of weeks, volatility to dissipate, lower prices tested successfully by finding renewed buying support, and then a higher High made in price than the one now seen in January (or whenever the current rally will find a rest).
On top of that, expectation management is critical – due to the smaller market size and relative lack of liquidity and institutional support, tokens trade very volatile and tend to retest bottoms or even temporarily undercut.
Let’s see how this will develop.
