After a fairly bullish period across the board for crypto markets, it seems that most cryptocurrencies have hit a bit of a bump in the road.
For example: over most of the past month, Bitcoin has been on a bullish trend toward $20,000. However, with prices sinking below $18,000, it seems as though Bitcoin may have officially started to retrace.
Ilia Maksimenka, chief executive and founder of PlasmaPay, told Finance Magnates that indeed, “Bitcoin was unable to make a significant move past the December 2017 all-time high.”
“The bears stepped in to prevent the price from breaking above the $20,000 psychological price point and were able to push it back below $18,000, tagging the 61.8% Fibonacci retracement level of the previous major pivot low.”
Bitcoin could retrace as far as $16,000 before rebounding
However, buyers haven’t let the price fall too far–yet: “the bulls quickly stepped in to buy Bitcoin at this price and kept the price within the well-defined parallel channel,” Maksimenka told Finance Magnates.
“If $17,600 is defended and respected, then the bullish Elliott wave count shows a move up to test the $21,000 resistance level,” he continued. “If this level is not defended, I expect the bears to push it all the way back down to $16,000, where the median line of the pitchfork should act as support.”
Still, “the Elliott wave is fractal, so as long as Bitcoin continues to make higher highs, the trend is intact and we should continue to push to new highs.”
But what could turn the bearish trend around?
Indeed, Lennard Neo, head of research at crypto investment firm Stack Funds, wrote in a Thursday report that “our analysts believe more inertia is required to push bitcoin beyond the $20,000 psychology barrier.”
And indeed, “more inertia” could be in short order–or at least, in the order of several months.
Further economic stimulus could be a boon for Bitcoin
As CoinDesk reported, “it’s becoming tougher to get through a rundown of each day’s news without finding a story or several about economic stimulus”; only the details of how much stimulus and when it will be released are changing.
However, while there hasn’t been consensus on the details of the stimulus plan yet, there has been consensus among analysts regarding the effects of economic stimulus on Bitcoin: it’s a good thing.
In particular, these analysts point to quantitative easing as being particularly beneficial for Bitcoin because of the weakening effect it has on the United States dollar.
Unlike the USD, “Bitcoin has a fixed inflation rate, and is deflationary by design.”
Indeed, Steve Ehrlich, the founder of US-based crypto broker Voyager Digital, told Finance Magnates earlier this year that “a weakening U.S. dollar is a very good thing for Bitcoin, and one of the reasons why Bitcoin’s price has been skyrocketing.”
“Bitcoin has a fixed inflation rate, and is deflationary by design, with only 21-Million Bitcoin to ever be created in its existence,” he added.
Ehrlich explained that this deflationary quality is one of the reasons that Bitcoin has been attracting an increasingly impressive list of institutional and corporate investors: “more and more public companies, like MicroStrategy, Square, are adding Bitcoin to their balance sheet,” he said.
“It’s because their annual productivity and growth rate has to be greater than 15 percent to counteract the devaluation of their cash reserves on hand due to inflation.”
USD is likely to continue to weaken over the long term
Ehrlich also says that he doesn’t see the USD’s weakening trend coming to an end anytime soon.
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“The U.S. Dollar has weakened due to a number of factors,” he told Finance Magnates. “One, the economic uncertainty due to the recent pandemic and economic shutdowns, which has stifled some productivity and economic growth.”
“Secondly, the Federal Reserve has inflated the U.S. Dollar by more than 15 percent in 2020, leaving 21 percent of all U.S. Dollars ever printed having been printed in 2020,” he continued. “The current rate of inflation has no signs of slowing down, with necessary financial intervention and stimulus in the future, more and more dollars will be pumped into the economy, thus lowering their inherent value.”
Ehrlich also pointed out the fact that fewer people are using physical cash in order to avoid spreading COVID-19: “as well as more and more people doing their shopping online, it’s estimated 40 percent to 70 percent of U.S. consumers will prefer to transact in digital mediums in the coming years,” he said.
In other words, “the place of physical cash in our current modern and unique time in history is under question.”
Indeed, “currently, there is no clear plan for the Federal Reserve to be able to slow down the inflation of the U.S. Dollar, and will continue to be 15% or more annually,” he said. “Until there is a proposed solution to the inflation problem, economic stimulus and recovery, we expect the dollar to continue to struggle. Unfortunately, those affected most by the devaluation of the dollar are the lower and middle class.”
Bitcoin’s detriment could be a boon to some altcoins
Therefore, while Bitcoin may be looking down the barrel of a retracement in the short-term, most analysts are unafraid of Bitcoin’s long-term price movements.
CoinDesk reported that Chris Thomas, head of digital assets for Swissquote Bank, sees the retracement as “a buying opportunity for those who have a longer time frame.”
“I’m not scared by this,” he said. “It’s just providing a better entry point for those who want to invest mid-long term. I haven’t seen much [over-the-counter] or larger activity this week, though.”
However, while Bitcoin has been falling, some of the larger altcoins seem to have been growing–in fact, a number of analysts agree that investors seem to be selling off their Bitcoins in exchange for altcoins.
Specifically, Chris Thomas told CoinDesk “our data shows that in the last four weeks the volume of XRP has increased substantially” to the detriment of both Bitcoin and Ether, the second-largest cryptocurrency by market cap.
The increased level of interest in XRP could be caused in part by an airdrop that the issuers of the currency did in collaboration with Coinbase.
However, at press time, the price of XRP seemed to have hit a bump in the road. XRP was down 4.47 percent over the last 24 hours and 11.83 percent over the past 7 days.
ETH trends down, too
However, the fall of Bitcoin doesn’t seem to be directly benefiting the price of Ether; in fact, at press time, data from CoinMarketCap showed the price of ETH was down 3.87 percent over the last 24 hours and 11.37 percent over the past 7 days.
Part of the drop could be because of the fact that the world’s first Ethereum ETF, dubbed “The Ether Fund,” made its on the Toronto Stock Exchange today under $QETH with a few hiccups.
Indeed, CoinTelegraph reported that “to the concern of interested traders, the fund was not available for trading upon the opening bell, officially halted because of a delay in closing the fund’s IPO prospectus.” As a result, the fund began trading two hours behind schedule, with 345,331 shares being traded across the rest of the day.
Beyond the ETF, the price of ETH is still relatively high–perhaps riding on the news that the Eth2.0 “Beacon Chain” was recently launched. Still, there could be some other factors that ETH will have to overcome before it can really take off.
For example, Vishal Shah, founder of derivatives venue Alpha5, told CoinDesk that the launch of the Beacon chain has moved ETH forward, there’s still a ways to go before it can be considered a truly “established” protocol.
“ETH should have a higher volatility given that it’s a less established protocol than bitcoin,” he siad. “It is materially smaller in market cap and has more uncertainties on the immediate horizon. The largest uncertainty would be the settling of [the Beacon Chain] and the transition to 2.0, it’s all a bit uncharted.“