The bitcoin price dropped by 31% since October 26, in just over a month. Yet, Blockchain Capital partner Spencer Bogart sees strengthening fundamentals pushing BTC up in the medium-term.
The cryptocurrency market showed signs of stagnation throughout November following China’s crackdown on small exchanges and the sell-off of bitcoin on spot exchanges like Huobi and Binance.
As said by Adaptive Fund partner Willy Woo, short-term price movements in the bitcoin market are often led by margin trading platforms like BitMEX.
Consecutive liquidations of either short or long contracts tend to fuel minor rallies or corrections, causing intense volatility. As such, short-term price trends of bitcoin are difficult to predict and are almost always conditional.
But, the medium to long-term trend of bitcoin can be identified with fundamental data and indicators.
When evaluating cryptocurrencies, analysts explore three major areas: transaction volume, developer activity, and hash rate.
Growth in all three areas indicate that that the user activity of a cryptocurrency is rising as developers and miners continue to strengthen network security.
According to Blockchain.com, total daily BTC transaction volume denominated by the U.S. dollar has increased from around $315 million in January 2017 to over $1 billion in December 2019.
Hash rate, which represents the total amount of computing power securing the Bitcoin network, rose from 0.3 exahash to over 100 exahash in the same period.
Based on the fundamentals, Bogart said during an interview with Bloomberg that the bitcoin price will move higher over the next several years.
I don’t think that bitcoin’s future is anyway dependent on what China does. So I think it is helpful to zoom out, get away from some of the near-term headlines because I think in general, any kind of short-term trading strategy around bitcoin is the wrong one.
I think the question people need to be asking is, is bitcoin going to be more successful in the next five years than today? I think if we look at all the underlying trends here, they are all very constructive. Bitcoin’s gone from being a joke just a few years ago to processing $1 to $3 billion worth of transactions daily.
The bitcoin price is struggling to recover beyond key resistance levels in the mid-$7,000 region as the year’s end approaches.
The lack of momentum in the short-term price trend of BTC may leave it vulnerable to declining sentiment heading into 2020.
As seen in 2018, when negative sentiment is carried over from the fourth quarter to the first quarter of the subsequent year, a bear trend gets extended.
Whether bitcoin is currently in a bear market is arguable, given its two-fold increase from January 2019.