In 2018 we witnessed a major pullback in the crypto markets after a record-breaking year in 2017. Bitcoin retraced more than 80% of its gains from 2017, and ETH, XRP, and many other altcoins saw a 90% or more retracement from their all-time highs.
Many have compared the dot-com bubble to what we saw the last 24 months in the cryptocurrency months. The question is whether cryptos will recover like Tech stocks did in the long run and become an integral part of the future of our economy.
Despite the big pullback, a bull market for cryptos could be around the corner. Today we will talk about the conditions needed for a bull market this year, and what factors will affect the trend of the market this year:
Regulation Certainty
Governments will play a major role in the adoption of cryptocurrencies in the future. Governments are uncertain how to classify cryptocurrencies, and as a result, cannot figure out the most efficient way to govern and tax them. Cryptocurrencies by nature are meant to be used without third party involvement. But it is difficult to imagine widespread adoption of cryptocurrencies until there is some degree of national acceptance of the assets.
Once we understand how governments will treat and regulate cryptocurrencies, we will understand better which cryptos will actually have a role and value in the future. Once this uncertainty is resolved, investors will be willing to invest significant sums of capital into specific projects and result in cryptos beginning a new uptrend. The SEC approving a Bitcoin ETF would be huge stride in the right direction.
Technical Bottoming
Bitcoin has historically recovered from retracements of this magnitude. It takes time, but it has always survived. At the end of the day, Bitcoin or any other crypto cannot appreciate in value into there are more buyers than sellers. We have talked about in a recent article about how low Bitcoin could go in this bear market. We looked at a history of Bitcoin declines and found out that BTC has recovered 4 times from a decline of a similar magnitude.
There are two typical ways that bear markets end: There is either an extremely large decline in the market in a short period of time that turns immediately reverses and changes trend. The other way is characterized by a long, slow period of sideways consolidation. We have seen this happen back in 2015-2017 after Bitcoin had a parabolic move from about $100 to $1000 a coin. The market trades sideways for a while, everyone forgets about it, and then the bear market ends when no one is looking.
Institutional Infrastructure
Infrastructure for institutional traders in cryptocurrencies will be essential in igniting the bull run. The launch of Bitcoin futures in December 2017 was a step in the right direction. But there is still a long way to go before institutions feel comfortable enough to put large sums of capital into the cryptocurrency markets.
The launch of Bakkt’s future contracts could be a big step forward. The launch has been pushed back several times, but it is expected to launch sometime this year. Bakkt’s futures contracts will be a significant improvement from the CBOE’s: Bakkt will actually purchase Bitcoin when they receive a contract order, as opposed to contracts that are just priced based on the underlying asset. This will mean that BTC will need to be purchased at market rates, creating better demand and liquidity, which will make it more appealing for institutional traders.
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