As a crypto HODLer with very little cash left to buy the dip, personally I'd really like to see this crab market end and crypto to head on a course straight for the moon. Realistically I know that anybody who tells you that they know exactly what the crypto market will do is definitely lying and anything could happen at any time for literally no reason in particular. All models are wrong, but some are more useful than others. In this post I'll be using some technical analysis, on chain metrics, and upcoming events to make speculation about what I think the market is more likely to do (go up) and some info about the potential for downside. Before I get started on this, here's a TLDR for those who CBA to read walls of text.
TLDR: Crypto market as a whole is still largely a slave to bitcoin price action. Bitcoin is forming a descending wedge pattern on low volume (reversal signal) and network hash rate is closely modeling the shape of the late 2018->mid 2019 bull action. On chain metrics also indicate that those with large amounts of bitcoin are largely accumulating at current prices. Ethereum London Hard Fork maybe also act as a catalyst for price increase. On the flip side, the 2021 cycle and crash in may has exhibited several of the same indicators we have seen post other cycle tops, and we could realistically have finished this bull run and be in the long term bear market. In addition, several impending market crash indicators for the US stock market are appearing and a stock market crash may lead to a crypto market crash similar to March 2020. Smooth brain say price either go up, down, or sideways.
1. Bitcoin as the market driver
Since the inception of cryptocurrency, bitcoin has been the dominator of market sentiment. Long term trends of nearly every cryptocurrency have followed the same trend and cyclical price action based on bitcoin's halvening events. Below are graphs of the total market cap of the entire crypto market and bitcoin's price for the past year.
Pretty easy to spot that these graphs are strikingly similar and come to the conclusion that the crypto market still is largely just following whatever bitcoin does. Personally I think within the next decade we will see other projects establish themselves well enough to become decoupled from bitcoin but for the time being analyzing bitcoin remains a solid method of analyzing what the entire market as a whole will do so for the rest of this post I will stick mostly to what's going on with bitcoin under the assumption that the rest of the market will generally follow bitcoin's trends.
2. Bitcoin price TA, the falling wedge pattern
First I'll start by discussing what a falling wedge pattern is, how it forms, and what it means. A falling wedge pattern occurs when you have contracting price ranges in an overall downward trend. Essentially you see lower highs and lower lows and the range that the price is staying inside of is getting smaller and smaller. Another indication of the wedge pattern forming is that volume is also decreasing.
A falling wedge pattern occurring after the general trend has been upward (definitely was the case for bitcoin prior to this correction) is a sign of trend reversal, in this case a correction ending and resuming a bull run. The more the price contracts during this wedge pattern, the less powerful the downtrend becomes. Let's zoom in on this.
Looking at bitcoin's recent price action, we can see the formation of the falling wedge and the accompanied drop in volume. My conjecture is that this is a pattern indicating a reversal in the trend and that we see the bull market resume after an extended correction (or short term bear market, whichever works).
Keep in mind, technical analysis is mostly bullshit, especially where crypto is concerned. There are significant amounts of traders that do trade based on technical indicators though so there is some validity to technical analysis but it is certainly far from a guarantee that what it is indicating will actually happen.
3. Bitcoin network hash rate
Bitcoin's hash rate is a measure of how much computing power is being applied to the network by miners. This provides network operation and security with increasing levels as more computing power is applied to the network. Bitcoin's price does not always follow hash rate, but it can give us an idea of how much interest there is in mining bitcoin and is a good valuation as far as bitcoins "worth" in terms of real value applied to the network in the form of computing power which costs money from electricity and equipment. Here's a graph of hash rate for the past 3 years.
Keep in mind that these hash rate values are not exact, but calculated based on how long blocks are taking to solve at current difficulty levels and then average over a short time period to create a trendline.
There are a few key things to take away from this graph. First off, a drop in the bitcoin price has not always been accompanied by a drop in hash rate. This point is more obvious when you look at hash rate during the end of the 2017 bull run (not shown here) where hash rate keeps going up even through the crash. In more recent years however, we have seen a general trend where the network hash rate drops and increases with the bitcoin price. Looking at the end of the graph it's pretty easy to spot where the middle of May 2021 is and when the Chinese miners had to shut down their operations.
What this caused was the largest difficulty drop on record (and another further difficulty drop the last adjustment). This means that mining profitability has now skyrocketed relative to where it was in May prior to the crash. Since then more and more operations (likely in China mostly) have had to shut down and as the network hash rate plummeted, prior to the difficulty adjustment, many miners probably shut down their equipment temporarily while mining was relatively difficult and block times were long. Let's zoom in to what's currently happening though.
Hash rate bottoms out at the beginning of July, where we had the massive drop in difficulty, and then BAM, hash rate immediately starts to climb back up. Mining is now profitable again and we see hash rate has been on an uptrend since that huge adjustment. Likely this is just the 1st wave, a lot of those china based mining operations are looking to move elsewhere and they are going to want to get back online while mining difficulty is still much lower than it was previously. An increase in hash rate means a more powerful and secure network, and a better valuation for bitcoin.
4. Bitcoin accumulation by the whales
For the sake of brevity and not just copy/pasting, I'm going to link this article which has a pretty solid analysis on the overall trend of various size wallets.
https://ecoinometrics.substack.com/p/ecoinometrics-on-chain-trends
The TLDR of this analysis is that wallet addressed that would constitute being whales, largely sold off as bitcoin reach trading high between March-May and have now begun to accumulate again with the price in the low 30k range.
Typically speaking we think of whales as either institutional investors or individuals with large amounts of wealth. Nobody in that group is particularly fond of losing money and generally have high amounts of market knowledge or at a minimum have their money being managed by those who do. With whales accumulating, and events happening like Bank of America offering bitcoin investing to "select groups", it's hard to ignore that big money thinks bitcoin has bottomed out and is putting their money behind that hypothesis.
5. Ethereum London Hard Fork
Most of this post has been about bitcoin but Ethereum has definitely become significant enough to warrant it potentially starting to affect the market and dethrone bitcoin as the sole driver. At time of writing Ethereum is worth 17.1% of the entire crypto market cap (compared to bitcoin's 46.4%). Ethereum has some exciting news on the horizon so let's take a look.
There are two main features coming in EIP-1559. The first being a change to how Ethereum gas fees are calculated. This change should improve the overall user experience of dealing with gas fees and hopefully also make gas fees more consistent in cost. The second is a gas fee burn mechanic. Essentially there will be a "base fee" and a "tip" portion of Ethereum gas fees in transactions. The "base fee" will be burned and the miners will get the "tip" portion. Paying the extra "tip" portion can essentially allow someone to pay extra fee in order to make processing the transaction more of a priority for the network.
The token burn mechanic is the one that has the most speculation as far as impact to Ethereum's price goes. Basing it off the general supply and demand, burning the gas fee instead of giving it to miners would theoretically cause a drop in the supply. For a given demand level this would then cause an increase in price. This is obviously not the sole driver of the price of any asset so just like any other single thing, it could cause nothing to happen.
6. The potential for downside
While I would love to live in the dream of "stocks only go up" the reality is nobody knows exactly what will happen other than that we will either see it go up, go down, or go sideways. Let's take a look at what could cause it to go down.
The first theory, is that we have finished the 2021 bull cycle and have entered the typical long term bear market following price run-ups in the halvening cycle. There are some standard indicators we have seen that have matched up with previous cycle tops. Bitcoin's price action has definitely trended like a cycle end since the middle of may. ~50% crash over a few days, followed by a dead cat bounce, then a slow decline. In addition, the ATH so far in 2021 occurred almost exactly at the same time in the cycle (days post halvening) that the 2013 peak happened. So timeline wise there is also precedent for the run to have come to an end. While a double peak is also not unprecedented as the same thing happened in 2013 run, we should definitely be prepared for the 2021 bull run to have reached it's end. This argument between end of cycle or double top has been beaten to death in the sub so I'll just leave it at, yes it is definitely possible we reached the end of the cycle, and it is possible we haven't only time will tell.
The second theory, is an impending US stock market crash. Looking back to the bitcoin chart, we see a large price drop occurring in March 2020, exactly lining up with the COVID induced stock market crash. One of the downsides to more widespread adoption and institutional investors is that when shit hits the fan for the stock market it will also hit the fan for the crypto market. Right now there are inflation fears, craziness going on with the housing market, insanely high reverse rehypothecation action, and several other indicators that have not been seen since the 2007-2008 time period just before the 2008 stock market crash. Even if it does happen, when it happens is anybody's guess, but a stock market crash is at least on the table and if it does happen its a pretty solid bet that the crypto market will crash too.
Conclusion
There are a lot of posts out there saying things like "price will go to 250k!", "the bull run is not over", "we are definitely in a bear market", "crypto will crash further", you guys get the gist. In reality, there are several things working both for and against the crypto market and either one could take the reigns at any time. The only proven strategy in the long term is to HODL for the big green candles. Don't trade based on emotion or what anybody (including me) tells you what they think is going to happen. The only thing anybody knows for certain is that nobody knows shit about fuck.
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