Happy Days to Be a Crypto Investor!

I have a train ride today that I will use to write down some thoughts on this market as it has continue to move forward like the days of strength we grew to love in 2017. However, the behavioral finance student in me has me looking carefully for signs of where these will lead. While it has been a bullish trend, we have seen major differences from what was experienced in 2017. Most notably, not all assets have really participated in this rally as the focus has become bitcoin once again.

I have always looked at bitcoin dominance as a metric to measure sentiment which has me concerned as I never thought we would see it at 60% again; particularly after falling briefly below 50% recently as other assets led the rally earlier this year. However, as these outperforming assets like Litecoin, EOS and others took a breather and had a pullback, bitcoin shifted to being the king of the hill once again. Despite news like the Binance hack (if you could it that), the market gather interest and moved higher. Volumes began to surge and bitcoin started to increase in price once again.

Another impressive factor of this experience is how the price has had little resistance which I believe indicates the most important shift to sentiment we have seen. I, personally did not believe we would see $6,000 until the end of the year. I was actually concerned with even trying to approach the price level as I thought it would immediately be met with not only resistance but a large supply of sellers. I also expected to see even bitcoin future sellers as well as short sellers at these levels pressure the market lower and feed into the expected resistance given the amount of time that the level held and consolidated at last year before what now seems to be the last leg down in the bear market. It was surprising to see that prices went right through these levels with little to no resistance in addition to no pullback to test the level yet.

I have been wondering what this means for some time as there are a number of implications to consider. For example, we are starting to see accelerating volume which could be an indication of FOMO in the market. I see this as a negative as it could ultimately lead to being unsustainable and for supply to come back into the market and pressure prices. At the same time, we have seen little following of the altcoin market which has meant that some assets have actually seen all time lows against bitcoin in this process. While the last day or so we have seen a bid in the altcoin market, bitcoin dominance continues to be at relatively high levels which could lead to drops accross the board which will be challenging for some assets and their markets.

Another interesting fact is that this run has occurred as traditional assets like stocks have met some challenges given the economic outlooks due to uncertainty related to trade deals and overall sentiment. Could this be a rotation into cryptocurrency assets from these markets or could it be just the implications of a market that expects for risk taking to be rewarded given low interest rates and government stimulating the markets? This could also have implications of the sustainability of high prices as we have learned that these trends can reverse quickly of liquidity all of a sudden dries up and flees the market. However, I also believe that this could also indicate inflationary pressures which would support flows into store of value assets like bitcoin.

My opinion is that we can now continue to say that we are out of the bear market but it does not mean that the picture will remain positive in the short term. Prices will eventually get to a point when those that bought at lows will be enticed to sell and take profits which is good risk management. However, given the imbalance of bitcoin dominance and the focus on the major assets, declines can still hurt projects that are still substantially lower than their highs of 2018. I still expect some (even the majority) to fail which could lead to some volatility. Therefore, we could now be preparing for a range bound market which could be as difficult and frustrating as the bear market.

The importance of adapting strategies and adjusting accordingly continues to be a fundamental factors for long term players. For example, dollar cost averaging and diversification will be key as the asset class continues to mature. If we miss the opportunity then we will bot be much better off than when in the declining market. I intend to stick to the plan and be opportunistic as well as looking to take some profits if they come along. Most importantly, never invest more than we are willing to lose!

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