With the current market movement (or lack of it) it’s important to understand the forces behind it and, at least to some extent, find reasons for the current stillness.
Why is the price moving sideways?
–disclaimer: my opinion is not financial advisement. Investing in cryptocurrencies has huge risks associated so read as much as possible to make better informed decisions–
In my last articles we’ve been discussing how smart money and dumb money forces push the price upwards or downwards. If we align this trend with the lack of interest from the general population over cryptocurrency and bitcoin, it becomes clear why has the price been moving sideways.
Social Media trend lines
One thing I really like to do is to see how people have been feeling about bitcoin lately. To do that we can check google trends for example.
Yes, the spikes match the huge price increases and drops which happen throughout late November 2017 to February 2018. What we see for March 2018 is a continue drop of people’s interest on bitcoin.
Another key feature of understanding price is looking into how much new money is coming into cryptocurrencies market. To do that, we look at volume.
Looks shady, right? As you can see volume has been quite low across all exchanges. And we’re looking into bitcoin, the most traded cryptocurrency there is. This also shows that clearly there is no new money coming into bitcoin, at least not smart money, as low volume usually means no huge quantity of fresh cash is coming into the market. If we check the number of trades this should give us a confirmation of what we just hypothesised, this is, if the number of trades is dropping over time.
There you have it. Lower trade volume means lower volume, which most likely comes from the lack of new people entering the bitcoin market.
–Man, I Love Bitcoinity, their interface to check out different data sources is top-notch. Highly advise you to check it out–
Although no new people are betting on bitcoin, this doesn’t mean the technology hasn’t been improving. Over the last couple of months two major breakthroughs happened. Well, three to be precise.
- Segwit implementation via a softfork during the summer (August 2017);
- The lightning network being successfully used in the testnet to buy pizza (twice!);
- Segwit actually being adopted by bigger players like exchanges.
To prove how wonderful this has been I will base my findings In two different sets of data. First we see how the hashrate is looking, this is, the number of machines trying to solve blocks, hence supporting the network.
As you can see it has been increasing over time. These are wonderful news although mining pools are a bit centralized, which can be a problem. Nevertheless more and more resources are coming into bitcoin, which to me is a good thing. I don’t support the view that PoW is a total waste of energy as if used worldwide, energy consumption wouldn’t suddenly skyrocket as there is no connection between the number of miners and the number of users, plus PoW has been the only consensus mechanism that has been proven to work in a larger scale. If PoS, directed acrylic graphs, hashgraph, byzantine fault tolerance and many other options that exist to reach consensus work in larger scales, then I’m completely for to adopting a new method. Until then, let’s just stick to what actually works and test different options.
Secondly, we look at the amount of data on each block, as the purpose of segwit was to make blocks smaller, so capable of having more transactions per block. To check if there has been community support what we do is we check the average segwit transaction count:
Adoption is increasing among big players, as there has been a huge spike recently. More however if we look into segwit transaction adoption rates we’re also greeted with a quite positive outlook.
Where will the price go? Upwards or Downwards?
Many different outcomes may come to price and as some TA experts point out, low support levels exist because they have huge amounts of orders ready to accumulate bitcoin at lower prices.
Nevertheless the trend line is positive as long as Bitcoin doesn’t go below the $11,000 line.
If you want my personal (and not financial) advise on how to behave, this is what I usually do:
- Follow the smart-money: buy when low, sell when high.
- Don’t get over-hyped by news. 90% don’t actually matter.
- Listen to people that possess some form of expertise in cryptocurrency and then try to adapt what I learned to my personal strategies (trading, analysis, technology development, etc).
- Think for yourself and don’t get greedy. Owning your mistakes is the easiest way to improve.
At the end of the day for a new technology to be exciting it necessarily has to be over-hyped. If you can share with me in the comments section down below, any example of a completely undervalued technology that later dominated the market, I’m all ears.
Patience. Use the Force. Think.
Last modified: March 4, 2021 5:05 PM