Bitcoin, Trading At Cost
The cryptocurrency market, led by Bitcoin, surged to astonishing highs last fall but has since fallen from grace. The market, spurred by actions in China, Korea, Japan and elsewhere, sold off as regulators untangle fact from fiction. On the one hand cryptocurrencies are a viable technology based on distributed ledger and blockchain theories. On the other it can be used like a currency although most are not intended for that purpose. In many jurisdictions cryptocurrency trading is not regulated other than in the most cursory way. The regulators are feeling their way as the market evolves, leaving traders uncertain about the future of their digitized assets.
Japan is the latest to make waves in the digital market. The Japanese regulator FSA does not officially regulate the cryptocurrency market although crypto trading is allowed, and the agency has been slowly tightening its grip. To date it has forced 4 exchanges to cease operations and sent business improvement letters to another 8. The latest include an improvement letter to Last Roots and a cease operations order to External Link. The move is in response to a recent hack of Coincheck which resulted in the loss of $534 NEM. Traders can expect to see the FSA continue to watch over the market and take action as it sees necessary.
Market strategist Tom Lee of Fundstrat pointed out that Bitcoin is trading around the cost of production, a price level it is not likely to break. He expects the entire cryptocurrency complex to bounce back by the end of the 2nd quarter with a year-end price target on BTC of $25,000. We agree that BTC and the entire cryptocurrency market will bounce back, the technology is too valuable, but think the end-of-year target should be closer to $40,000. Once BTC breaks to new highs a surge to $30,000 will soon follow, with momentum taking up another 30% by the end of the year.
What will drive the reversal? For one, regulation is a good thing for the cryptocurrency market and will, in the long run, lead to a wider acceptance of the technology. In the near term a cooling of regulatory woe and even good-news is expected. While regulators are tightening their grip, they are not outlawing the trade. After that a series of positive business developments from megacorps like Amazon and Starbucks will help to drive sentiment.
Bitcoin is now trading just above $6,550 and at a very important support level. If this level is broken the market could collapse. A bounce from this level would be bullish and is what we expect to see form over the next few weeks and months. The indicators are weak and point lower, in line with the shorter term trend, but are also consistent with support at the current level. The down trend line is the more important line to watch. A fall from it would confirm the down trend and possibly lead to a break of support. We expect to see this line break as time moves forward and support continues to hold. Once that happens downward pressure on prices will begin to let up, allowing the reversal rally to begin.