The idea of market cycles is widespread in finance. The simplest principle is that what goes up must fall. The reason is that investors will flock to low prices, which will lead to higher prices. When the price peaks, the sales pressure will intensify as shareholders seek liquidity, and push the price down again.
If you bought Bitcoin (BTC) in 2017 or earlier, this sounds strangely familiar. He basically describes what happened during the previous bull run, when BTC hit $ 20,000. Therefore, most cryptocurrency holders eagerly follow current market conditions.
But so far, apart from some adjustments, prices are holding down, or at least rapidly reversing losses. What are the chances that this will continue? Can we expect 2021 to be equal to 2017 and the beginning of 2018, or is the current operating cycle just starting?
Echoes of the past
When it comes to the similarities between now and 2017, there are some important similarities, the first is the relationship between bitcoin prices and mining half bonuses. Each time the mining reward is halved, there is a new deficit in the Bitcoin offer.
The second half was in July 2016, and in 18 months bitcoin increased almost 3900%, rising from $ 500 to $ 20,000 before crashing. The third half was in May 2020 when Bitcoin traded around $ 9000. Nine months later, Bitcoin broke the record of around $ 62,000 and reached 560% in the process.
In the same period, after cutting in half in 2016, the gain was much lower in percentage: In April 2017, BTC had grown by around 150%. If the markets follow the same pattern, they will experience more dramatic gains, followed by a major crash. Of course, these price movements apply after being cut into two only bitcoins. But no matter where BTC goes, the rest of the markets will tend to follow.
There is also some connection between the chain measurements in 2017 and 2021. According to Glassnode, there is a high proportion of BTC collected and held both in 2017 and 2021. In fact, the months leading up to the 2021 bull race show that more BTCs have been inactive than ever in history .
Active headlines recently reached a full-time high of over 22 million, surpassing the previous record of 21.6 million in December 2017.
The feeling of euphoria that emerged in 2017 may be less tangible, but still relevant. The inflated markets for decentralized financing and indestructible tokens, the exchange of memes followed by the unexpected return of Dogecoin (DOGE), and the general hype surrounding cryptocurrency markets all remember the strong days of the ICO era.
The same, but different?
Despite the similarities, there are many differences between the cryptocurrency markets now compared to 2017, which are mainly related to the status of advanced maturity. Four years ago, cryptocurrencies were the preserve of individual retail speculators. In an interview with Cointelegraph, Simon Kim, CEO of the Hashed cryptocurrency fund, said: “The market operates on a completely different basis,” adding:
“First, many DeFi projects create value based on a clear business model. Second, we see active record investments from institutional investors, and eventually many slopes are beginning to come, including not just PayPal and Visa. but also large banks. ”
The banks involved include Goldman Sachs, Citigroup and Deutsche Bank, which recently announced plans to merge cryptocurrencies and create more bullish signals. And do not forget that Tesla has announced a $ 1.5 billion investment in BTC.
Chad Stinglas, head of trading at Crypto Capital Markets Corporation, CrossTower, explained why the exit of corporate and banking investors and payment giants was important and predicted the type of prevailing acceptance that has been discussed for so long:
“The institutional investment fund is forming deeper pockets and longer investment horizons for traders who ran the rally in 2017. If you add the huge growth in access to cryptocurrency markets for non-exchange traders through the fintech giants PayPal and Square, we see the base expand and deepen. Investors. ”
The widespread availability of derivatives is another factor that helped raise prices this time. Believe it or not, in 2017 only a few exchanges, especially BitMEX and OKEx, offered futures trading. Institutional futures offerings first emerged in December 2017, when both the Chicago Mercantile Exchange and the Chicago Exchange launched their own bitcoin-backed contracts.