Week in Review: Crypto Rally at a Crossroads

The final week of December delivered yet another volatile turn for cryptocurrency markets. Following a nearly $50 billion influx, digital assets turned sharply lower as bargain-hunters took profits on their trades and the majors pulled back from extreme overbought territory. With only days remaining, many investors will be keen on putting 2018 behind them.

Stocks experienced one of their most tumultuous periods of the past decade highlighted by extreme moves in both directions. This included the worst-ever Christmas Eve performance followed by a miraculous comeback on Boxing Day.

For a recap of the market’s recent performance, read last week’s review: Crypto Rally Gains Steam, Western Union Open for Business and Facebook Dabbling in Stablecoin

Crypto Rally Loses Steam

The one-year anniversary of bitcoin’s epic rally to $20,000 triggered an unsustainable buying frenzy in digital assets. The cryptocurrency market cap established a new December high of $147 billion earlier this week before plunging to $120 billion after Christmas.

Markets staged an impressive recovery on Friday, with much of the gains concentrated in the last 60 minutes of this publication. The crypto market cap is back around $130.5 billion, virtually unchanged from last week.

Individual assets were much more varied. Bitcoin’s price was on track for a weekly loss of 2.6% while Ethereum traded 17% higher from week-ago levels. Bitcoin cash deflated 12% following a triple-digit rally that drove prices north of $200. Read: Bitcoin Cash Price Analysis: BCH/USD at Risk of a Full Reversal After Promising Run.

Bitcoin’s Gravitational Pull

Bitcoin has long been the dominant player in the cryptocurrency market and its gravitational pull on other assets cannot be denied. However, the leading digital currency saw its influence fade at the start of the week as altcoins and tokens notched new monthly highs. As a result, bitcoin’s share of the overall crypto market fell to around 50.4%, its lowest in five months. (The so-called bitcoin dominance rate usually falls amid bull runs.)

The market’s subsequent correction in the latter half of the week pushed the BTC dominance rate back above 52%, where it presently resides. A historical snapshot of the dominance rate is presented below.

Bitcoin currently trades at around $3,900, where it faces immediate resistance at $4,000. Above that psychological level, the next major resistance test is located between $4,200-$4,500. Price failed to breach this level during the latest rally attempt, sending BTC and the broader market lower.

Return from the Abyss

U.S. stocks staged a dramatic relief rally on Wednesday, with the Dow Jones Industrial Average recording its biggest-ever single-day point gain. The blue-chip index rose a whopping 1,086.25 points, or 5%, to close at 22,878.45. The S&P 500 and Nasdaq posted similar percentage gains.

The epic rebound followed a dramatic plunge into bear-market territory before Christmas. The usual cocktail of forces – monetary policy, global growth woes and political instability – were responsible for the slide. Since these forces still lurk in the shadows, the recent rally attempt may have just been a ‘wicked bear trap,’ according to MarketWatch.

This environment has made gold and other haven assets more attractive. Bullion rose to a fresh six-month high this week, while silver reached its best levels since August.

Attention in the new year shifts back to trade negotiations between the United States and China. The leaders of both countries engineered a 90-day truce at the G20 summit in Buenos Aires, Argentina on Dec. 1. Negotiations are expected to heat up in January.

Meanwhile, the U.S. government shutdown entered its seventh day on Friday, with President Trump threatening to close the southern border as the budgetary stalemate continues. The crux of the issue centers on Trump’s proposed border wall, something Democrats have refused to support.

The Week Ahead

2019 is shaping up to be a year of new paradigms for cryptocurrencies. If 2017 was the year of ‘crypto mania’ and 2018 was when the bubble burst, the next 12 months could see evolution for a market still emerging from its primitive state.  This means important developments around institutional investment, custody and regulation. It also means consolidation away from the ICO bust toward viable projects capable of delivering on blockchain’s revolutionary premise.

That being said, price action is expected to remain highly volatile for the foreseeable future. A focus on long-term value instead of short-term profits will help investors navigate the storm.

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 Hacked.com and Contributor to CCN.com, 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