Bitcoin’s Sideways Trading signals a Prolonged RecoveryNovember 19, 2022
After a catastrophic start in November, the crypto ecosystem managed to somewhat stabilize itself over the previous week. That included the defense of the 16,000 USD mark for the overall price of the BTC token and the rejection of any further slips down. Many feared when the latest crypto crash came knocking, that the target for the bears will be somewhere near the 10,000 USD zone and that essential psychological barrier. However, the same did not occur despite the incredibly damaging collapse of the FTX digital currency exchange and its broader crypto space.
So, the good news is that the crash did not continue downward and that BTC entered a period of sideways trading, where the price continued to hover around 16,000 USD. While that stability is a good signal against further losses, it also shows that no Quincy rebound can happen either. The same, in continuation, means that the ongoing crypto winter is likely only going to get even longer and more severe, following the pattern of the global economy that is struggling. While the HODL traders and investors might have zero doubt about what they wish to do, the rest of the crypto market participants are desperately trying to figure out the exact possible course of that hard and brutal winter of digital currencies.
For 10 consecutive days, BTC kept the support of the 16,000 USD waterline. Other digital currencies are also in a flat and sideways trading trajectory, without any big movements either up or down. Ethereum, which saw a massive fall in the last crash as well, is now trading around 1,200 USD, even though it lost nearly 5 percent cumulatively. But, despite the changes in the apparent trajectory of price movements, the indicators, including deep technical factors, are unanimously showing that the impulse in either direction is all but gone. The FTX exchange filed for Chapter 11 bankruptcy protection last week, which is very damaging to any possible quick rebound or a relief rally.
Yet, the bankruptcy also shows that the management and owners of the digital exchange plan to see it through as a regular company finding itself in financial and operational distress. That is comforting to all of those who worried that the FTX management and even its famous founder Sam Bankman-Fried would simply disappear with the funds from this massive crypto operation. However, with the bankruptcy filing, esports players, crypto whales, ordinary small-scale investors, and everyone else active on the exchange got a clear signal that the FTX will continue working inside of the system.
Coinbase Easing of Tension
The problem related to the FTX was the fact that it had and still has numerous connections to other entities in the crypto market space. Binance, for example, shortly considered buying or supporting the exchange in time after the cracks began appearing. It decided to drop that possibility and the FTX went under. However, more worryingly, the fallen digital currency exchange also had connections to the other much more relevant entities, at least for the US markets. Coinbase is one of them and any massive insecurity at that point would have been extremely damaging.
However, Coinbase eased those fears by revealing last Friday that their connections to the FTX balance sheet were relatively limited. That created a buffer for any massive possible liquidation that many feared. Users of Coinbase could relax about any immediate catastrophic scenarios and know that their funds are for now in safe and stable hands. That too allowed for prolonged sideways trading and removed worry about a possible further slip in the crypto market valuation.
While Coinbase might be safe from the FTX fallout, the extent of the same event for the crypto space is clearly anything but minor. The overall crypto market capitalization fell to below 800 billion USD. That is the lowest level since the early months of 2021. Of course, as the generally awful 2022 winds down, there are other problematic macro factors in play as well. Inflation is still rampant across the globe and many nations, including the US, are figuring out ways to end it through austerity.
That, in turn, will generate a lot of negative pressure on the economy, which will see a big squeeze as well, dropping growth for a semblance of stability and inflation reduction. In that time frame, which the Bank of England estimates will last for two years or longer, the chances of a big investment drive into digital currencies are practically impossible. Because of that, the safe bet is that the current crypto winter will outlast that of 2018 by at least a year or even longer.
Accumulation and Staking
The outlook for 2023 and possibly beyond that is very gloomy. But, beyond the near future and even the longer possibilities for a change in direction of the market, there are signs that the market is not truly buckling under the pressure of the present negative developments. The key element here is the continued accumulation of crypto tokens across long-term holder accounts. Currently, that figure stands at 3 billion USD and many have increased their holdings since the collapse of the FTX. Others are planning clearly on doubling down on crypto, despite the long-term possibilities presently looking very limited. History is also showing that many are ready to accumulate with some force even in the midst of a bear market and then start to sell when crypto returns to all-time highs.
A part of that process is those long and tedious periods of sideway trading when nothing much is happening. This a bad prospect for day traders but not something that works against long-term holders. For them, even slides down are not something they cannot work with, especially using the DCA approach. Because of that, while the crypto winter keeps marching on, so do the long-standing mechanisms of accumulation and patience. History shows that these eventually can create true fortunes, even when they lay the foundations in a really weak market period.