The idea of market cycles is widely accepted in finance. The most basic principle is that what goes up must come down. The basic reason is that investors will accumulate when prices are low, which will cause them to rise. Once the price reaches a peak, it will take over the pressure to sell as soon as the holders try to make money, which will bring the price back down.
If you bought bitcoin (BTC) in 2017 or earlier will sound frighteningly familiar. It basically describes what happened during the last bull run when BTC reached a maximum of $ 20,000. Therefore, most cryptocurrency holders follow current market conditions with bated breath.
But so far, apart from a few corrections, prices have held, or at least quickly recovered, losses. What are the chances that it will continue? Can we expect 2021 to take place similarly to 2017 and early 2018, or is the current run cycle just beginning?
Echos of the past
As for the similarities between today and 2017, there are some critical parallels, the first of which is the relationship between BTC prices and half mining fees. Each time the mining fee is halved, it adds a new shortage to bitcoin reserves.
The second halving took place in July 2016, and in 18 months the bitcoins climbed to approximately 3,900% and sank from $ 500 to a maximum of $ 20,000. The third half was in May 2020, when BTC traded around $ 9,000. Nine months later, bitcoin managed to reach a new all-time high of around $ 62,000, gaining 560% in the process.
In the same period after the dissolution in mid-2016, percentage gains were significantly lower, with BTC increasing by approximately 150% by April 2017. If markets follow the same pattern, they will see even more epic rises and sharp declines. Of course, these price movements after dissolution only apply to bitcoins. But when it comes to BTC, other markets tend to follow.
There are also some correlations between on-chain metrics in 2017 and 2021. Both 2017 and 2021 show a high percentage of BTCs that accumulate and hold, according to Glassnode. In fact, months before the preparation of the 2021 bull run show that more BTCs have been kept idle than at any time in history.
Active addresses also recently reached an all-time high of over 22 million, beating the previous high of 21.6 million in December 2017.
Perhaps less tangible, but still relevant is the sense of euphoria that has been reflected since 2017. Inflated markets for decentralized finance and dysfunctional tokens, a look at memes, followed by an unexpected recovery of dogecoin (DOGE) and the general excitement surrounding crypto markets is reminiscent of the heady days of the early era of coin offering.
Same … but different?
Despite the similarities, there are now many differences between cryptotrems compared to 2017, especially in relation to the advanced state of maturity. Four years ago, cryptocurrency was the complete auspices of individual retail speculators. Simon Kim, CEO of Hashed Crypto-Risk Fund, told Cointelegraph that “the market is running on a completely different footing,” adding:
“First, various DeFi projects create value based on a clear business model.” Secondly, we see record-breaking active investment by institutional investors, and finally, various on-ramps and off-ramps are now emerging, including not only PayPal and Visa, but also large banks. “
The banks concerned include Goldman Sachs, Citigroup and German bank, which recently announced plans to integrate cryptocurrencies to generate additional bullish signals. And don’t forget the support Tesla brought, announcing that she had invested $ 1.5 billion in BTC.
Chad Steinglass, CrossTower’s chief trading officer in cryptocapital markets, explained why the input of corporate investors, banks and payment giants is significant, predicting a long-accepted way to adopt the mainstream:
“Institutional investment is based on deeper pockets and longer investment horizons than traders who supported the course of 2017. Add to this an explosion in access to cryptocurrency markets for non-trading participants through the fintech giants PayPal and Square, among other things, we see both expanding and deepening investor base. “
The wide availability of derivatives is another factor that this time helped to increase prices. It’s hard to believe, but in 2017 there were only a few exchanges, especially BitMEX and OKEx, that offer futures trading. Institutional futures offerings did not arrive until December 2017, when the Chicago Mercantile Exchange and Chicago Board Options Exchange launched their own bitcoin-backed contracts.
Although there were some speculation At a time when these launches hastened the onset of cryptozima, there is no doubt that the availability of derivatives has attracted more professional investors, which has ultimately helped to push up prices.
In 2017, of course, none of the above would be possible, given the amount of regulatory uncertainty that existed at the time – another factor that indicates that this time things will be different.
Metrics point to a different type of cycle
The metrics also point to some differences between the 2017 cycle and this cycle. One of them is the difference in bitcoin dominance. During 2017, BTC’s dominance dropped dramatically from 85% to a minimum of 32% – the lowest point ever. The decline reflects the appetite for altcoins that appeared against the background of the launch of Etherea and the subsequent ICO boom.
On the other hand, since BTC regained 60% dominance in the summer of 2019, it has remained fairly stable around this mark. Ether (ETH) also showed similar patterns. Since the epic rise in prices in 2021, both BTC and ETH have seen a small increase in dominance at the expense of wider altcoin markets. These metrics therefore suggest that the new generation of investors is less fickle and more committed to BTC and ETH as core assets.
Fluctuations in bitcoin prices have also fallen slightly in recent years, at least in relative terms. As recently he noted Bloomberg, the sliding 60-day volatility is now lower than it was during the last peak.
However, the key term here is “relative”. At $ 60,000, 5% of price fluctuations lead to $ 3,000 fluctuations. At $ 1,200 in mid-2017, a 5% move would have seen price fluctuations between $ 1,140 and $ 1,260. When it comes to real gains and losses, the difference is chasmic.
The volume of the exchange flow is another metric that is worth considering. Unlike the bull run in 2017, the stock exchanges in 2021 receive much less BTC. This suggests that investors are interested in sticking, which will reduce traders’ BTC and increase prices.
The macro outlook remains bullish
After zooming out, the overall picture looks completely different compared to 2017. Although much of the stock market has performed better than expected under the pressure of the ongoing pandemic, investors now face much greater uncertainty than years ago. This probably created a bullish case of bitcoin as a safe haven asset, which is also reflected in gold prices.
Simon Peters, an analyst at eToro’s market, believes that while further volatility may occur, a price slump can be avoided, Cointelegraph said: “I think at some point there will be a significant correction in the bitcoin market, but not 80-90 % declines we have seen in the past. He added the reasons for the forthcoming shift:
“The demographics of cryptocurrency investors have changed compared to previous years, with greater institutional participation, leading to greater capital inflows.” Hundreds of millions, if not billions of dollars are being exchanged for individual purchases, and this increased liquidity will lead to more stable prices. “
In addition, the pandemic has accelerated the transition to all digital things. The prospect of the central bank’s digital currencies and the growing dependence on digital payments create an even stronger case for cryptocurrencies as a fully digital asset class.
Taking all the different factors into account, the argument that this bull run is somewhat different from the 2017 cycle seems more convincing. Although markets are very likely to undergo further corrections at some point, they appear less likely to be as sudden and dramatic as they did in early 2018.
Even in a more advanced state and with a very different taste, however, cryptotrhy are still cryptotrhy and history can confirm that anything is possible.