“The Year of the Rat began on Jan. 25, 2020 according to the Chinese zodiac. This is a Year of Metal Rat and lasts until the 2021 Lunar New Year's Eve on Feb. 11. It is symbolized by a Mountain floating atop the Ocean, an image which suggests a lack of solidity and security.
However, there are opportunities disguised as problems in every situation and with proper foresight and positioning they can be golden for you.”
One year ago, as bitcoin ($BTC) and cryptocurrency market prices showed the first signs of bottoming after a dramatic +80% decline in 2018, my perspective on the year ahead (2019) was positive. On February 7, 2019 I wrote:
My mental model for 2019 is that of a farmer who plants and cares diligently for his crop in patient expectation of a bountiful harvest!
While the overall trend in crypto markets is still down, $BTC and alts prices have remained above their December 15, 2018 lows. We are probably in an accumulation zone with a retest of the December lows still ahead of us in February. My bias is 70/30 in favor of the lows being in and that the first higher lows and highs above the $BTC – US$4,100 level may be confirmed as early as later in February or March.
Sentiment is at rock bottom with the majority seeming to favor another leg down into the US$2K region. Perhaps since everyone expects another break of support – well, then we go higher from here. Fundamentals are strong and improving, but certainly anything is possible with Bitcoin. Accordingly, this is a good time to slowly start to accumulate only the very top coins while preserving capital to buy more lower IF we dip there as well as keeping powder dry for the higher prices where market bull trend reversal is confirmed.
After the first quarter of 2019, prices and sentiment marched upward along a steep incline peaking in June, and then trending downward for the rest of the year to end with a very respectable year-over-year gain for bitcoin ($BTC) of 87% at US$7,200 and overall cryptocurrency market capitalization increase of 55% to US$198 billion as of January 1, 2020.
The month of January in 2020 has been notably more bullish than recent prior years with bitcoin ($BTC) up 30% to US$9,350 and overall cryptocurrency market capitalization up by 33% to US$259 billion as of January 31, 2020.
We did not observe the usual Chinese New Year effect on prices, which in the past has led to weakness in the price of $BTC during the month of January as that nation closes for business over a period of several days to celebrate, perhaps selling cryptocurrencies to raise money for travel, gifts, etc.
The obvious unique factor to consider for 2020 is coronavirus and whether the outbreak meant (a) the Chinese were less inclined or able to sell, (b) “fear” that may have caused periodic broad weakness across global equity markets and falling bond yields also drove buyers to cryptocurrencies and/or (c) central bank liquidity injections designed to support legacy financial markets have also flowed into crypto.
However, while the price of $BTC continued its 2020 ascent over this past weekend of 8 February by trading over US$10,000 for the first time since September 2019, I do not expect bullish price action to continue in the immediate short term. Although 2019 was a great year for Bitcoin/crypto market fundamentals and regulatory developments, cryptocurrencies have failed to make meaningful inroads in attracting significant new capital. The accumulation taking place over the past 12 months is occurring among a small group of informed wealthy investors who have been active in the space for many years and a steady but modest stream of new retail investors around the world.
Overall, this is a picture of strength and a set up for spectacular returns in the 12-24 months ahead. But first, the medical martial law state of affairs in China may yet have a severely negative impact on the price of bitcoin and global markets in general. With the Bitcoin network specifically, I am watching the hash rate – that is, the amount of computing power connected to the network recently reaching all-time highs – and whether we will see Chinese mining operations begin to shut down due to firm closures and illness. Price tends to follow hash rate. If it begins to decline noticeably, this could be a leading indicator of where price is going next and for how long until the Bitcoin network and supply/demand dynamics recalibrate through difficulty adjustments and halving supply constraints.
Will extraordinary measures by central authorities to provide liquidity to markets be enough to avoid a severe correction or crash, defaults and margin calls in equity and debt markets that also drive investors to sell bitcoin and other cryptocurrencies to raise cash in a scramble to manage short term financial calamities? Bitcoin miners who have been withholding supply from the market in anticipation of the halving in a couple of months may start selling more bitcoin sooner rather than later if prices fail to rise as far and as fast as would otherwise have been the case over the next several weeks. This is not to say that I think the halving is “priced in”… rather, I expect if coronavirus is not contained urgently then a negative sentiment will overtake all markets thereby muting the effect the halving would otherwise be expected to have on prices before a post-halving price correction.
In any event, my best and worst case scenarios for the global markets impact of the coronavirus pandemic underway point to a massive surge of adoption and safe-haven investment flows into bitcoin and cryptocurrencies in 2020 (and beyond). As disruptive forces around the word continue unabated in severity, the knock-on effects of coronavirus may just provide the extra dose of reality that causes financial market levitation to reverse. I believe conditions are setting up for a historic break-out and break-up in the USD price of crypto assets.
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