Cryptocurrencies Have Shown Rare Stability Recently, but the Bulls are Coming

Cryptocurrencies have exhibited unusual stability over the past three weeks, as investors continue to feel their way through a complex system of regulations, technical data and sentiment indicators. Though not nearly as exciting as the first six weeks of the year, the relative calm can only be viewed as a net positive for a market that is still in its infancy, but pushing forward nonetheless. That being said, recent price action has given us enough evidence to conclude that the bulls are making their comeback.

Narrow Trading Range

We’ll preface this discussion by reminding investors that the cryptocurrency market is held to a different standard of volatility. As an example, the market peaked above $830 billion in early January; one month later, it was worth $276 billion.

By comparison, the past two weeks have been much calmer, with a total market fluctuation of just $80 billion. This may seem like a selective time period to prove our point, but it isn’t; the crypto market hit its most recent peak on Feb. 17 with a total value of $518.4 billion. Since then, it has touched a low of around $420.1 billion and spent the majority of its time hovering between $440 and $460 billion.

The Coming Rally

Despite the relative calm we are witnessing, the bulls may be ready to flip things around sooner rather than later. Most of us have absorbed bullish recommendations on bitcoin showing prices destined to reach $22,000 (or is it $25,000, $50,000?), but far fewer have looked into the coin’s bearish cycle in recent years.

As it turns out, bitcoin’s last seven bear-market cycles have averaged 71 days, according to Dan Morehead of Pantera Capital. We crossed the 71-day mark about a week ago. How have prices performed over that period? Very well.

Since the Feb. 26 swing low around $9,500, bitcoin has rebounded 20%. (In stocks, a bull market is usually described as a period where equities have gained at least 20%.)

For more evidence of an uptrend materializing, consider the following chart, which depicts bitcoin’s price crossing the 50-day moving average for the first time since January.

A clean break above this critical level could ignite renewed buying interest in the world’s most active cryptocurrency. And as we’ve seen repeatedly, where bitcoin goes, the market follows. This observation was less apparent at the start of the year, a period that saw unprecedented speculation in altcoins. But recently, bitcoin has regained its dominance of the market to account for roughly 42% of its total capitalization. The cryptocurrency also accounts for over 40% of daily trade volumes.

Big Risks are Still Out There

That being said, there are real risks underpinning the market that extend far beyond the regulatory FUD making its way through the media. (At this stage, regulation is just as much an opportunity as it is a risk.)

In the author’s view, one of the biggest risks barreling down the market is Tether. We still aren’t sure if the currency is what it says it is. Neither is the Commodity Futures Trading Commission (CFTC), which has subpoenaed the company along with Bitfinex – an exchange that just so happens to share the same executive.

We’ve warned investors in the past about FUD, so it’s not our intent to fill your mind with unnecessary fear. However, Tether’s USDT token is the second-most active cryptocurrency by trading volume, which makes the outcome of the investigation especially critical. As the trade data clearly show, Tether is a significant source of liquidity for the half-trillion-dollar crypto market. If rumors are true that it is circulating more tokens than its dollar-denominated banking account actually owns, we could be in for trouble. (At this stage, these are more than just rumors: read up on the massive spike in USDT circulation in recent months.)

Though always risky, cryptocurrencies appear to be forging higher. Of course, predicting the precise nature of the rally or when it will materialize is notoriously difficult. Even with this uncertainty in mind, there’s enough reason to be chipper if you are a long-term holder.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi