It is not a big secret, that a lot of market players are trying to compare the current situation on the crypto market with the phenomenon we saw in 2017. Back then, in October, the BTC price was 2 times lower and ICO made the market super attractive for scammers (so as DeFi now). Should we really be prepared for a rally starting from now?
In my opinion, comparing 2017 and the current situation on the cryptocurrency market is not entirely correct. There are a number of significant reasons for this.
If we recall 2017, then the main market participants were mostly private traders – crypto enthusiasts, speculators, who accelerated the price of bitcoin by the end of the year. The main driver of Bitcoin’s growth back then was the FOMO effect, the effect of lost profits, in other words, greed and fear of missing out on excess profits. Today the situation is radically different, as the cryptocurrency market itself has changed. The market has become more mature, today it meets the criteria of the traditional financial assets market in almost all aspects. Let’s name a few of them.
- The number of participants, especially institutional ones, has grown; funds, management companies, banks and other financial institutions have been added to private traders.
- There is also a wide variety of derivatives on the market today: a large number of futures and options.
- The number of exchanges and their infrastructure has grown significantly.
- All these factors contributed to the growth of liquidity in the market, and as we know, the higher the liquidity, the lower the volatility. This is exactly the thing that characterized the market in 2017 – high price volatility. Today, we most likely will no longer see the volatility of bitcoin as in 2017. Therefore, the dynamics of the price of bitcoin in the coming months will be different than in 2017.
A characteristic pattern for Bitcoin this year was the achievement of a certain psychological level and consolidation around it, followed by a breakthrough upward. In many ways, the determining factors for the price of bitcoin will be external: the development of the second wave of the pandemic and the incentive program to combat it, as well as the presidential elections in the United States. In general, we can say that these factors will have a positive effect on the value of the first cryptocurrency, as many investors will exit risky assets and look for an alternative to invest.
If we talk about the prospects for Bitcoin for the next 2-3 years, we at EXMO see them undoubtedly positive. You may ask – why do we have such confidence? Because we see the adoption of bitcoin as a means of payment, and as an investment asset both.
The post-Covid period will be significantly different from the period prior to it. To combat the economic consequences of the crisis caused by the pandemic, central banks will resort to a number of stimulus measures, one of which will be the depreciation of national fiat currencies. Against this backdrop, Bitcoin, with its deflationary model, will be an excellent alternative to savings, even for households.
Another point is the theory of cyclical growth of bitcoin. If you pay attention to the exponential chart of bitcoin since the date of its foundation, then you can distinguish 3 cycles, approximately 3-4 years long, each of which has a similar structure. According to this theory, it is possible that we are already at the beginning of a new wave of price growth, which will end with the establishment of a new all-time high in 2021. However, the main recommendation for investing in several parts is to allocate the investment amount into several parts, invest in fairly deep corrections and not influence greed and fear. It is possible that already in 2021 we will see the price of bitcoin above $ 20,000.
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