Since its all time high in December 2017, Bitcoin finds itself 44% down in 2018. But will the bearish trend continue? Our CEO, Paul Cliffe looks at the potential performance for the rest of this year.

Well, the party had to end some time. Since the turn of the year, cryptocurrency investors have felt the wrath of the bears. As the famous Wall St maxim tells us:

Bulls make money, bears make money. Pigs get slaughtered.

But is there a difference between the ‘Jonny-come-latelies’ who thought there was a chance to make a quick buck and the true believers – those who #HODL through peaks and troughs? Yes. In the sense that hodlers don’t care about the day-to-day price shifts. They care about the libertarian edge of Satoshi’s whitepaper. They care about the better world that bitcoin can take us to. Those caught up in the hysteria of December last year however…….

This little piggy went to the crypto-market, just before the slaughter began.

So, a lot of the late comers have been burned. A lot of the hype has died down and the volatility seems to have put the average ‘non-core’ potential buyer off. Google searches for bitcoin have diminished at the same rate they spiked and dollar price of bitcoin has fallen 62% since its December high.

Correlation doesn’t necessarily mean causation………

But enough about farm animals. What’s going to happen with bitcoin over the next 3 quarters? I’m not too sure. No-one is. But I can have a red hot crack at what might happen.

The best way to consider bitcoin is, indeed any asset, as a market. And there is an inalienable pattern that transcends every market. Either quickly or slowly, micro- or macro-scale, all markets follow a certain pattern. If you read my previous post on medium, you will have already come across the market cycle graph:

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This pattern is the same as bitcoin’s price action against USD over the last 8 months. The market sentiments are added to show the points:

So, there you have it. Bitcoin is currently depressed. The slip we’ve seen this morning may well be the onset of disbelief.

Of course, there will be some out there who look at this and think ‘What a rip. You can make anything look like anything else if you try hard enough’, but the market cycle is a winning technique that day traders have used for years. We use it for one of our trading strategies to great success and we are also building an algorithm around it as I write this article.

If this assumption of being on the cusp of ‘depressed/disbelief’ in the market cycle is correct, what does this mean for bitcoin?

Well, due to the speed with which the crypto-market moves, I think that we will start to see a recovery in the price of bitcoin within 2 months. So, by the end of April, we should start to see the green shoots of recovery. This fits in well with increased lightning network adoption over the coming months, making bitcoin’s adoption as a global payment choice all the more likely. A great option given that we’re on the verge of a global trade war were currency manipulation acts as a weapon to keep imports away from sovereign states' shores.

But there are threats to this timescale for recovery. The G20 meeting in July is scheduled for the start of international action for crypto-regulation (a plan that this author takes exception with as it will prove nearly impossible to implement). The market is easily spooked by talk of regulation, which to me is the same as bailing on a good poker hand because you can’t see your opponent’s cards.

The implication that regulation will cause a market crash is self fulfilling. We’ve been told since ‘blockchain AD’ that ‘bitcoin is for drug dealers and cyber criminals’ by mainstream media. In actual fact, cash is a lot safer as an option for illicit activities – cryptocurrencies being converted to fiat currency are easily traced.

The numbers support it.

According to Europol, of the €100bn in suspected laundered money across the EU last year, less than 4% of it was laundered using cryptocurrencies. If they were truly ‘the platonic tool for money laundering’ this figure would be a lot closer to 100%.

However, the market thinks that a clampdown on bitcoin will mean the market will be flooded with supply from those of a less than illustrious reputation and prices will collapse. It then becomes a race to the bottom as everyone tries to sell. The fact is, there is a lot less laundered money in the market than many fear – there wouldn’t be a market otherwise.

Once the markers have been laid for where regulation will take us, we should see a clearer horizon for the crypto-market. My assumption is that regulation will be aimed at ‘ramps-on and off’ the market. This means the conversion of fiat currency to cryptocurrencies and vice-versa will be policed and will help promote good Anti-Money Laundering and Know Your Client practices at exchanges (making banking services easier to come by for them and making the whole crypto-to-fiat economy a lot more efficient).

Although this eats away at the libertarian dream that cryptocurrencies and Blockchain technology could underpin, it will bring advantages too. Namely the greater likelihood of institutional money. Once big financial institutions get involved, demand will skyrocket and the market should, in theory, boom (assuming that the market isn’t manipulated by big players looking to earn mega-bucks off warping futures markets and other such potential issues).

Apart from the G20's attempt at uniform, international regulation of cryptocurrencies, there don’t appear to be too many more regulatory shocks in store for bitcoin this year. All sound bites from financial institutions and the like are beginning to fade into the background – regulated entities they use on a daily basis are creating products with bitcoin, deeming it a fraud would undermine their own reputations too – and everything that can be done to discourage people from cryptocurrency and ICO investing/ speculation appears to have already happened.

Moves from google, Facebook and twitter to stop ICO investing show a lack of customer care on their behalf. Scam ICOs aren’t too difficult to spot, but a wholesale ban on any marketing through these channels shows that they’re not willing to move with the times. Furthermore, the proliferation of unregulated investments that appear through these channels shows that there is potentially an ulterior motive at play here.

Anyway, I digress.

Back to the point of the article.

In conclusion, I think we will see the start of a bull market for bitcoin in May this year. This may be derailed by the G20 attempt at global regulation (for this, please see ‘Paris accord’), but should this happen, it will still be good overall for the crypto-market.

Who knows. I might even be right.