June was a strong month for crypto markets with bitcoin $btc demonstrating its strength and unique significance to the entire sector.
In my May report to clients, I wrote:
My target for the current parabolic rise underway since April is US$13,000 in the month of June/July followed by a 40% correction and then a continuation upward after finding support in the US$7,100 – 7,800 range (or higher).
Bitcoin Dominance
On June 26, bitcoin reached a high price of US$13,800 as I had forecast, however the speed and ferocity of the move was truly astonishing. The retrace was 30% to US$9,700 on July 2. Many top alternative currencies managed well enough in USD terms even though the majority of new capital entering the market went to bitcoin and alt coins were sold for bitcoin. Bitcoin trading pairs (performance of alt coins relative to bitcoin) were down significantly across the board. I see this trend continuing for the next several weeks with bitcoin dominance in overall crypto market capitalization going higher from here.
When Alts Season?
With the exception of a few select coins, I expect that a so-called “alt season” (parabolic gains in most alternative coins similar to what we saw in July – Aug 2017, and Dec 2017 - Jan 2018) will not occur until end of the year or Q1 2020. In general, I predict that 2019 will be a stellar year for bitcoin, with ether and Litecoin taking silver and bronze medals. While a number of other alt coins perform well (and significantly out-perform bitcoin), the real opportunity for alternative projects as a group to shine will probably be in 2020 as profits are reinvested by successful investors throughout the ecosystem. The Bitcoin halving (when the supply of new bitcoins minted by the Bitcoin blockchain and entering the market is reduced by 50%) is another catalyst for the overall market to continue a strong performance throughout 2020.
Outlook for July and August
As of today’s date, it looks like bitcoin’s June retrace from US$13,800 went only as low as US$9,700 (a 30% decline) and we may be heading higher to my target of US$17,000+ within weeks. The June bitcoin correction was NOT the blow-off top I am looking for to signal the end of this move. Catalysts for an extended parabolic move –
(1) new trading platforms coming online for institutional investors, and positive legal and regulatory developments in the U.S. and/or
alternatively, the rising dominance of bitcoin in the market and significant buying pressure displayed in June may be a sign that –
(2) major dislocations are occurring in other markets (negative yields, broken central bank monetary policies) or due to geopolitical forces and capital flight (Iran, Hong Kong protests).
Some of the price targets I find credible based on my own proprietary technical analysis could be the result of the above pressures overflowing into a temporary panic and/or euphoria in July/August that bids bitcoin higher than many currently foresee.
A Clearer Picture Emerges
The hour-to-hour price moves of bitcoin during these summer weeks are hugely significant for forecasting the next 12-24 months for bitcoin and the alternative currencies.
A clearer picture is emerging of which assets may benefit most in that timeframe due to legal and regulatory developments, e.g., global money laundering rules for crypto exchange platforms announced at the G20 meeting in Japan, in the U.S. through the IRS issuing new tax guidance, plus CFTC, SEC, FINRA and New York Department of Financial Services approvals, friendly tax regime implementation in Singapore, as well as next generation regulated U.S. based trading platforms coming online in the next 2 quarters. As regulatory bodies around the world specify the technologies they approve for new products, regulation and tax exemption, we have a strong indication of where a large portion of new institutional capital will flow due to increased legal certainty and counterparty standards that meet fiduciary obligations.
FACEBOOK and LIBRA
The announcement of Facebook’s plans for launching the Libra blockchain has been a very significant development, however, I do not think it was a major factor in last month’s price action. While the news may have encouraged current investors that we can expect an acceleration in the timeline for the adoption of cryptocurrencies and blockchain technology, it is not credible to imagine that Facebook suddenly encouraged tens of millions of dollars of capital to rush out and buy…. BITCOIN! Facebook has nevertheless raised the profile and credibility of cryptocurrencies in general and forced many to take a closer look at the sector. We learned that Facebook spoke to the Federal Reserve and the Bank of England in advance about their plans and received favorable reactions. That is until today with respect to the Federal Reserve, as we saw Chairman Powell sing a very different tune than at last month’s FOMC meeting press conference. He is now firmly in line with calls for Facebook to cease development and considers Libra a potential threat.
Libra Backlash
Legislators and politicians in various countries have universally expressed serious reservations and alarm. The U.S. House Financial Services Committee requested an immediate moratorium on the implementation of Facebook’s proposed cryptocurrency and digital wallet, pending Congressional hearings and regulatory review. According to Bloomberg, France’s Finance minister Bruno Le Maire said Libra “can’t and... must not happen” and that “it is out of question’’ for the cryptocurrency to “become a sovereign currency.” He has reportedly called on the G7 central bank governors and guardians of the global monetary system to review the social media giant’s upcoming cryptocurrency and submit a report in July. Markus Ferber, a German member of the European Parliament, warned that Facebook could become a “shadow bank” and said regulators should be vigilant. The South China Morning Post reported that the People’s Bank of China says Libra poses a risk to the Chinese yuan.
The BRIGHT SIDE
Whatever the outcome of regulatory scrutiny or opposition to the Facebook project, we now have several very important topics elevated prominently for the average citizen and policy makers to contemplate and understand:
What is currency? What entities should have control or authority for issuing and managing a currency?
What attributes make a particular currency attractive?
What are the vulnerabilities and shortcomings of the current system?
What benefits do blockchains and cryptocurrencies offer over legacy payment systems?
How can private currency and government currency co-exist?
What issues matter when considering moving from the physical realm (cash) to a completely digital system (e.g., issues like privacy) AND what is the significance if such a system is controlled and monitored by corporations (e.g., Facebook’s coin) and reportable to government authorities versus a decentralized anonymized system that cannot be controlled by a single party or parties who may want to collude to overtake or change the system or place controls on its participants ability to transact (e.g., Bitcoin, privacy coins)?
Any way you slice it, the Facebook project announcement is the marker after which we are seeing wide-spread acknowledgement that cryptocurrencies are not going anywhere. They present opportunities for huge benefits to individuals, businesses, and even Central Banks, and the resulting remaking of our world according to this new technology is inevitable.
Summary
Battle lines are being drawn among corporations, the banking system, governments and central banks vs the people through open, public decentralized blockchain protocols. I say, let the world decide and let the best currencies win.
Bitcoin and truly decentralized cryptocurrencies have some unique competitive advantages that cannot be replicated by any of the other product offerings. They have some unique obstacles as well! My research and investment choices are heavily focused on following the evolution of these unique factors.
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