Analysis of the Cryptocurrency Market — What is the Driving Force?

During the past few weeks, the entire cryptocurrency universe has experienced a rather painful decline. Of course, it’s always difficult to pinpoint the exact reason for a sharp sell-off. Today, we've prepared a short-term and long-term analysis the driving force behind the bear and bull market.

The most likely culprit in the cryptocurrency market is the recent false breakout in Bitcoin (BTC). On 25 July, BTC penetrated its short-term resistance level @ 8421. However, the market was unable to generate a sustainable bullish breakout and BTC quickly rolled over to the downside (chart #1).

Digitex — Crypto Market Analysis

The false breakout in BTC ignited a chain reaction in other cryptocurrencies. For example, Ethereum (ETH) lost 51% of its value while Litecoin (LTC) suffered a 47% decline during the same time period. Additionally, many of the recent ICOs experienced brutal declines. None of the digital currencies were able to escape the carnage.

Are we in the early stages of a long-term decline in the cryptocurrency market? Is this the beginning of a nasty bear market? Most likely, the answer is “No”. In fact, a valid argument could be made that all digital currencies are building a base in preparation for a bullish advance. Let’s review the current state of the cryptocurrency universe by examining the market from a short-term and long-term perspective.

Short-Term Outlook (Technical Analysis)

As we briefly discussed, BTC generated a false bullish breakout on 25 July. This was the catalyst that pushed all cryptocurrencies to the downside. Where do we go from here? From a technical perspective, it does appear that the cryptocurrency market could experience some additional weakness on a short-term basis. In order to gain a clear picture, let’s analyze the most recent 9-month chart of BTC (chart #2).

Digitex — Crypto Market Analysis

The important support level for BTC on a short-term basis is 5494. Why is 5494 so important? Because it represents the low point just prior to Bitcoin’s huge price explosion beginning on 13 November 2017. This date marked the launching pad for Bitcoin’s move to 20K. Therefore, it’s important for BTC to stay above this critical support level. As long as all price declines can be contained above 5494, the entire cryptocurrency market is in good shape.

Based on the current chart pattern, there is a decent chance that BTC will test the important support level @ 5494 within the next 6 to 8 weeks. Of course, this bearish outlook could be wrong. The critical number to watch is 9133 (chart #3). A weekly close above 9133 could propel BTC (and all digital currencies) to much higher levels. The battle lines have been drawn. The important numbers to watch are 5494 and 9133.

Digitex — Crypto Market Analysis

As a side note, many traders have asked why Bitcoin is always used whenever we analyze the cryptocurrency markets. Because Bitcoin is considered the “bellwether” coin within the entire digital currency universe. Consequently, BTC provides the best reference point for all cryptocurrencies. Additionally, it should be noted that analyzing the short-term direction of any market is always more difficult than analyzing the long-term direction. It’s much easier to provide an accurate multi-year forecast.

Long-Term Outlook (Technical Analysis)

Although the short-term outlook is slightly bearish, the long-term picture for the entire cryptocurrency marketplace is extremely bullish. All signs point to much higher prices over the course of the next several years. Let’s evaluate the “big picture” of BTC along with all cryptocurrencies.

The best way to define a bull market is, “a series of higher highs and higher lows”. Based on this definition, BTC has been in a continuous bull market since its inception in January 2009. For the past eight years, BTC has enjoyed dramatic rallies followed by brutal declines. However, each rally has always exceeded the level of the previous rally. This is a classic definition of a bull market. As long as this pattern continues, Bitcoin (along with the entire cryptocurrency universe) will remain in a bullish uptrend.

During the past six months, many traders and speculators were fearful that Bitcoin’s price collapse in early 2018 had marked a significant top in the cryptocurrency market. Prior to Bitcoin’s sharp decline, several financial pundits and investment professionals were claiming that BTC was in the midst of a “tulip mania” bubble. Therefore, when the crash finally occurred, a large group within the crypto community thought Bitcoin would never recover. However, history tells us that it’s actually quite common for BTC to suffer massive declines of 50% or more. Please review the following table.

Digitex — Crypto Market Analysis

Since its inception in 2009, BTC has experienced five major declines of greater than 50%. This includes the most recent decline of 71%. Each brutal price decline was eventually followed by a new all-time historic high. Based on this information, Bitcoin will ultimately exceed its high from 18 December 2017.

Here’s a neat little statistical fact: Based on the historical data, it takes BTC 651 days to generate a new all-time high (after falling by at least 50%). Therefore, we can conclude that Bitcoin could possibly generate a new high by June 2020. Of course, this is pure speculation.

Obviously, it’s impossible to forecast Bitcoin’s next big price move. However, it is fun to think about.

The True Driving Force Behind the Crypto Bull Market

As we just discussed, the cryptocurrency universe is still in good shape, particularly if we view the market from a long-term perspective. Based purely on technical analysis, we can build a fairly bullish argument. However, the true driving force behind the digital currency bull market is not chart patterns and support/resistance levels. Instead, the true driving force is blockchain technology. This is the engine that will launch all cryptocurrencies to dramatically higher prices over the course of the next decade. For a moment, let’s explore the blockchain by placing it in a proper context against other disruptive and revolutionary changes throughout history.

There are several time periods throughout global history where disruptive technology has dramatically improved the economic well-being of its citizenry. Examples would include the Industrial Revolution, Technological Revolution, Digital Revolution, and the Information Age.

Currently, we find ourselves in the early phases of the Information Age, which is actually a subset of the Digital Revolution. The beginning of the Digital Revolution dates back to the 1970s, with the proliferation of personal computers into our daily lives. These types of economic “revolutions” typically last 50 to 70 years. Therefore, we can expect the Digital Revolution (and the accompanying Information Age) to extend well into the 2030s.

Blockchain technology will go down in the history books as one of the true generational game changing events within the Information Age. The most exciting part is the fact that the blockchain is still in its infancy stage. We’re just getting started. Twenty years from now, it’s probably a safe bet that cryptocurrencies and blockchain technology will be fully functional within the global economy. However, the transition to a cryptocurrency/blockchain environment will not be a smooth process. The “Bitcoin naysayers” will continue to resist the advancement of a cryptocurrency environment.

If the blockchain and cryptocurrencies have so much upside potential, why are people against the advancement of this new technology? Because most people are resistant to change. Generally speaking, people do not like their lives being disrupted (even if the disruption improves their financial position in life). Without question, blockchain technology will completely alter the way consumers work, travel, communicate shop, eat, and educate themselves. This explains why many people are “pushing back” against the cryptocurrency movement. Most likely, people will continue to have a healthy skepticism of this new technology until they are convinced that digital currencies will actually improve their lives, particularly from financial perspective.

Although many individuals are against blockchain technology, the entrepreneurial community absolutely loves the blockchain. Why is blockchain technology so popular among the entrepreneurial community? Because business leaders and entrepreneurs are very good at extracting inefficiencies from the global economy. The blockchain works incredibly well at removing inefficiencies by eliminating the intermediaries that stand between the consumer and the supplier of goods and services. In effect, the blockchain is removing the “middleman” from the equation. Entrepreneurs love removing waste from the supply chain. This explains why they love cryptocurrencies and the blockchain.

At this point in its life cycle, the likelihood of cryptocurrencies collapsing into obscurity is rather remote. In fact, the entire digital currency universe (along with the accompanying blockchain technology) will most likely continue to be a growing presence around the world. One hundred years from now, the digital currency movement from the early 21st century will go down in the history books as one of the truly disruptive forces in the global economy.

The Current State of the ICO Market

As we just discussed, the future looks bright for cryptocurrencies and blockchain technology. Both of these areas are in the early stages of a long-term bull market. However, the same thing cannot be said of the ICO market. Currently, the ICO market is experiencing some “growing pains”, as the market tries to absorb the large number of initial coin offerings. The ICO market has literally exploded during the past few years. Please review the following table.

Digitex — Crypto Market Analysis

As you can see from the table, the growth rate of the ICO market has been phenomenal. During the past two years, the number of ICOs has increased 11,733%. Within this same time period, the dollar amount of raised capital increased 45,606%. Of course, this growth rate is unsustainable. Most likely, the ICO market will enter a “cooling off” period, as the number of ICOs begins to subside. In fact, in the long run, it would be much healthier for the ICO universe if there was a noticeable decrease in ICO activity for the next several months.

Why has the ICO market erupted in popularity during the past two years? Because entrepreneurs and small business owners are fully aware of the incredible potential of blockchain technology. Consequently, they are trying to claim their stake in this exciting new technology as quickly as possible.

Given the recent dramatic increase in activity, the ICO market certainly runs the risk of overheating. In fact, the current state of the ICO market is very reminiscent of the dotcom mania from the late 1990s. Many dotcom companies were formed in the 1990s, but only the strong companies survived. The same thing will be true of companies involved in ICOs; many will perish as investors determine which ICOs are actually capable of producing a valuable good or service.

Digitex ICO: A True Success Story

Without question, there is one ICO that will be among the winners when the dust settles. The name of the company is the Digitex Futures Exchange. Digitex launched its highly successful ICO on 15 January 2018. A total of 700m DGTX tokens were released to the general public at a price of $0.01 per token. All tokens were sold in 17 minutes. The Digitex Futures Exchange raised $5.4m.

Why will Digitex become such as successful ICO? Because the company is supplying the cryptocurrency marketplace with a new and innovative product, which will benefit the entire cryptocurrency trading community. Digitex is a one-of-a-kind commission-free trading exchange with its own native cryptocurrency. Digitex is not all “fluff”. Instead, they are actually adding value to the digital currency space. Traders and speculators will benefit as a result of Adam Todd’s forward thinking vision to launch a commission-free futures exchange.

This explains why the Digitex Futures Exchange will be one of the ICO survivors. Ten years from now, Digitex will be regarded as one of the true success stories within the universe of initial coin offerings. The future is bright at Digitex!

Personal Observations

Throughout my 29-year trading career, I’ve witnessed several historic bull markets and major technological advances. Arguably, the greatest bull market during my lifetime was the internet boom beginning in the mid-1990s (also referred to as the dotcom mania). This bull market was so powerful because it not only delivered spectacular investment returns, but it also was responsible for dramatically changing the global economic landscape. Even today, twenty years after the start of the internet boom, consumers are still reaping the benefits of this amazing technological advancement.

Personally, I’m convinced that cryptocurrencies and blockchain technology are on the right path to matching (or even exceeding) the success of the internet boom. Why? Because the blockchain is capable of completely altering the way we live our daily lives. Dozens of industries will become more efficient and thousands of employment opportunities will be created thanks to this new innovative force.

Digitex is a perfect example of a company using cryptocurrencies and the blockchain to dramatically improve the futures industry by offering commission-free trading. Adam Todd and his team at Digitex are taking an outdated industry (like the futures industry) and harnessing the power of the blockchain to create a world class futures exchange for the trading community.

During the next few decades, there will be several success stories of companies like Digitex who will take the global economy to the next level by using the power of cryptocurrencies and blockchain technology. It’s never a good idea to bet against the forward progress of innovative companies like Digitex!

Brief Summary of the Crypto Bull Market

  • The short-term trend for BTC is slightly bearish (based on technical analysis).
  • The important support level is 5494.
  • The important resistance level is 9133.
  • The long-term trend for BTC is extremely bullish (based on technical analysis).
  • BTC is considered the bellwether within the digital currency universe.
  • Since its inception in 2009, BTC has experienced five major declines of greater than 50%.
  • The true driving force behind the cryptocurrency bull market is blockchain technology.
  • We are in the early phases of the Information Age, which is a subset of the Digital Revolution.
  • Blockchain technology will be a game changing event within the Information Age.
  • Many people are against blockchain technology because they are fearful of change.
  • People will remain skeptical of the blockchain until they realize its economic benefit.
  • Entrepreneurs love cryptocurrencies and the blockchain because of its disruptive potential.
  • The ICO market is experiencing “growing pains” as it absorbs an influx of new coin offerings.
  • The growth rate of the ICO market has increased several thousand percent since 2016.
  • The current state of the ICO market is similar to the dotcom mania in the mid-1990s.
  • Many ICOs will perish, as investors determine the true value of each business model.
  • Digitex will be one of the successful ICOs because it offers a unique product.
  • The future looks bright at Digitex.

 

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