February 5, 2018 is the day when investor fear was replaced by avarice. That marked the current bottom for cryptocurrency prices. It’s pretty enough to make this claim now that we have had a few good trading days. But how do we know for sure that the worst is behind?
Oh if there was a safe method to measure fear and avarice in this nascent crypto world. It could tell us decisively when market tops and bottoms are happening, we could make some real digital dough. In truth, there are lots of instruments that have been tried on traditional markets likes stocks and bonds. But if these will really work in crypto land remains to be proven.
Sometimes the most reliable barometer is nothing more than “gut feel”. Here is what feels encouraging when I apply this test.
The February 5th Bottom
Variability has been a main feature in crypto trading since day one. After better than a 7000% appreciation in Bitcoin and Ether in 2017, should a massive correction be surprising? Between December of last year and February 5th, Bitcoin lost almost 2 thirds of its price while Ether lost almost 50%. We could go on listing every currency but you get the point.
If this were the notorious Dutch tulip bubble of 1634 the carnage would have continued constantly. With the help of crypto, investors collectively found value starting on February 5. Since then, Bitcoin has gained 50% and Ether about 30%. That has all taken place in a matter of 14 days.
That is unprecedented. When the dotcom price burst in February 2000 the Nasdaq began a 75% drop before hitting bottom in November. It took 14 years before the Nasdaq completely recovered.
Running Scared Of Government
A lot of investors try to connect the stock market correction with the slide in the cryptocurrency markets. That would be a mistake because the circumstances are absolutely different.
The crypto correction and scaring headlines coming from China and Korea about threatened government crackdowns had everything to do with investors heading for the sidelines. This is not to ignore the mechanical impact like the slow transaction speeds etc. But the moment the word government comes into the picture, the worst fears prevail.
With the advantage of time, investors are slowly coming to the awareness that no government regulation can efficiently manage ownership of cryptocurrencies. However, they can regulate the operation of exchanges and that is a good thing. This offers the chance to clean up the bad practices, surplus fees and outspoken frauds which have hurt the individual investor.
Original investor reaction to the Chinese and Korean government news reminds us of a significant point. There is no such thing as perfect information in the crypto market. Even so called professional investors know not so much. The general public are price driven momentum players. Even erroneous headlines move markets; facts take more time.
A Pickup In ICOs
It doesn’t matter if you are dealing with stocks bonds or Bitcoin, when investors are willing to put money in the most speculative sectors, that is a sign of market power. Recently we wrote an article noting a sudden fall in capital raised from ICOs during last month.
We used data collected by ICO Watchlist. These people are the only ones collecting information and their numbers don’t always agree. But we are using their date directly for relative aims.
Starting from a monthly average of about $400 million during the 4 peak months of 2017, January dropped to just $76 million. It’s not difficult to understand, that investors lost their confidence in high risk tools.
Manythings are beginning to change. With the recovery of main currencies the ICO market is showing new life. According to ICO Watchlist, with more than 7 days left in the month, ICOs have raised over $176 million.
These calculations exclude the current ICO underway for messaging application Telegram that says it has raised $850 million thus far in a $2 billion total effort. If these initial reports prove correct it would be the biggest ICO on record and create brave headlines.
More Hedge Funds Are Arriving
In accordance with Autonomous hedge fund money is piling up to between $3.5 and $5 billion marked exceptionally for crypto investing. The growth is dramatic reaching 226 funds globally compared with about half that many as recently as 5 months ago. At the start of 2017 there were just 37.
The Negative Headlines Are Gone
There is nothing like raising prices to force the media to seek explanations. And now instead of naysayers like W. Buffett being quoted permanently, CNBC brings on Shark Tank host Robert Herjavec declaring the Bitcoin is “going to skyrocket again” the “blockchain technology is here to stay” and that more government regulation will be the key factor.
CNBC even dragged out an old forecast by Tom Lee prejecting Bitcoin at $25,000 this year and Kay Van-Petersen of Saxo Bank predicting Bitcoin at $100,000.
The market litmus that I call “gut feel” can’t be considered to be scientific. Perhaps, there are analysts of big data that can propose better supporting proofs. But for now, things are looking quite well.