Uncovering technological advancement, regulation and how to analyze the markets
From market crashes, revolutionary hard forks, several halving cycles, and significant regulatory bills; every trend and growth in the global crypto-assets market can be traced back to one or a series of events in the global crypto-assets market.
The initial growth in liquidity in crypto-assets can be traced back to Bitcoin's use for transactions on Silk Road, the first modern dark web marketplace. The use of Bitcoin for these transactions by early adopters set in motion a series of events, including the rise of other digital currencies, digital assets exchange platforms, and wallets, ultimately leading to Bitcoin achieving its $1 billion market cap.
Another notable milestone was Vitalik Buterin's (co-founder of Ethereum) technological breakthrough, which paved the way for altcoins and a digital assets market less reliant on activities surrounding Bitcoin. This ushered in the era of initial coin offerings (ICOs) and a diverse asset market with numerous digital assets and use cases.
Today, the global market cap crypto-assets at the time of writing stands at $1.14 trillion (CoinGecko), and boasts over 100,000+ crypto assets. These crypto-assets serve investment categories such as gaming (play-to-earn), move-to-earn, climate (carbon credit tokens), Metaverse (e.g. SAND), NFTs, Stablecoins, etc.
To better understand future market trends, traders and investors should analyse historical market trends to try and model different scenarios and test trading strategies. But as always, please remember that any past performance, projection, forecast, simulation or results is not necessarily indicative of the future nor a reliable indicator of the likely performance of any investment.
This article covers some key developments in crypto-asset technology and provides an overview of some of the tools to enable investors to interpret price trends in crypto-assets.
Numerous factors can significantly alter price trajectories in both the short and long term. If you examine the crypto-assets price chart over its decade-long history, you will find unique events that can be categorised into one or more of the factors we explore below.
In this section, we provide a chronological breakdown of these factors and highlight actual cases that demonstrate how they redirected existing price trends.
The crypto-assets market emerged from the foundations that had been laid 16 years earlier from cryptography research, at Bell's lab, on using blockchain technology to validate data integrity over a trustless open network. The eventual breakthrough in blockchain technology gave birth to Bitcoin in 2009, ushering in a new era in digital finance.
Bitcoin adoption and Vitalik's smart contract innovation and other factors propelled the digital assets market from approximately $5 billion in market capitalization to over $500 billion between 2014 and 2016.
Subsequently, the ICO boom, triggered by various smart contract applications and boutique token offerings across industries, pushed the market past the trillion-dollar threshold. Through the use of smart contracts, new projects could launch their token project quickly and easily via ICO before exchanges caught on and listed certain tokens in an initial exchange offering (IEO). Not all tokens that ICO and listed for IEO, this is because centralised exchanges (CEXs) such as One Trading perform due diligence into the projects to protect customers' interests and reduce the risk of rug-pulls.
Subsequent blockchain developments have come in the form of decentralised applications (dApps) and non-fungible tokens (NFTs) which we’ll discuss later in this article.
While technology can contribute to a price turnaround, it's crucial to assess whether its effect is amplified by external forces, such as media influence, as is often the case with technology-driven market bubbles.
The crypto-assets market is arguably one of the most volatile asset markets, which has historically been characterised by low liquidity and low regulatory oversight, which is gradually changing as institutions, governments and regulators enter the fray. These characteristics make crypto prices susceptible to sentiment and speculation-driven fluctuations, akin to the early stock market influenced by tabloid rumours.
The 2017 crypto boom serves as a prime example, with the entire crypto market reaching record highs. This surge was primarily driven by speculative fervour fueled by increasing popularity and an influx of new investors. Prices of crypto assets skyrocketed to unprecedented levels, only to experience a significant crash in 2018, underscoring the profound impact of sentiment on short-term trends.
The Terra Luna Trillion-dollar crash resulted from bearish sentiment as TerraUSD (UST) holders lost confidence in the underlying asset and payment system supporting the Terra Luna USD peg, largely influenced by Binance's position in the Terra stable peg token and its team. This crash represents the largest bearish trend, by volume, in the crypto market, to date. Algorithmically pegged stablecoins, like TerraUSD, add tokens to the stablecoin supply if the price is getting too high to bring the price down, or vice versa; remove tokens from the supply if the price drops. The flash crash of TerraUSD subsequently led to widespread scepticism surrounding algorithmically pegged stablecoins.
Halving is a deflationary measure written into Bitcoin's algorithm, which restricts supply (Bitcoin issuance) by reducing the block reward miners receive by 50% every four years. This factor consistently influences the next bullish trend in the crypto-assets market.
Since Bitcoin's launch in 2009, each halving event has typically been followed by a price surge. You can read more about Bitcoin halving here.
Regulators have been attempting to keep pace with the technological developments of Blockchain technology, notably with the shuttering of the Silk Road dark web marketplace for the use of Bitcoin to purchase illicit goods and services. Over the years, governments and regulators have increasingly intervened to establish frameworks for crypto-assets regulation.
In 2013, the Chinese government's legalisation and adoption of crypto-assets and Bitcoin mining led to a surge in crypto-assets investment and adoption in China, contributing to the bullish trend of 2013, which subsequently collapsed due to the Mt. Gox digital currency exchange hack.
Additionally, the influx of institutional funds in 2016, driven by the New York State Department of Financial Services (NY DFS) release of the BitLicense document, played a pivotal role in the 2016-2017 bullish trend, only to be followed by its downfall with the US Securities and Exchange Commission (SEC) investigation of ICOs in 2018.
For investors seeking entry or exit points in the market, analysing recent and forthcoming regulations should be a crucial consideration. Upcoming regulatory news are the forthcoming assessments for approving Bitcoin and Ethereum spot ETFs by the SEC. For instance, Invesco and Galaxy joined a growing list of firms applying for ETH-spot ETFs.
The next section of this article delves into best practices for crypto-assets market trend analysis.
Fundamental analysis, akin to other asset classes, requires delving deep into the business, product, and use case underlying an asset. Similar to factors influencing trends, fundamental analysis necessitates examining the factors surrounding digital or virtual assets beyond price charts.
It's about comprehending the actual value and the "why" behind its price movements. There are various ways to approach this, as described below:
A fundamental rule for crypto-assets is that an asset should offer a product beyond its role as a token in the market. Ideally, its token should have a use-case application within its specific product. Beyond listing a token on a digital assets exchange, crypto-asset teams ought to offer functional technological developments that underpin their native virtual currency.
Consider Ethereum, for example. Ether, the native token of the Ethereum ecosystem, is used for settling network fees for all smart contract transactions conducted on the platform. This encompasses decentralised applications (dApps), decentralised finance (DeFi) solutions, and NFTs.
When assessing an asset's likely trends, users should evaluate the use-case value it provides, rather than getting swept up in overvaluation driven by marketing hype.
Similar to utilities and use cases, a token should have a community of users holding it both for practical use and because they believe in the narrative and team behind the product.
Governments, central banks, and major institutions wield significant influence over the entire global market direction as well as the crypto-assets market's direction. As we discussed earlier, the entrance of institutional funds into Bitcoin's liquidity in 2016, the US SEC's licence of 2017, and the resulting bullish crypto-assets price trend are perfect examples of how this can play out in prices.
Beyond the crypto-assets market, the global market also has several instances of emerging economies where regulations influence crypto-assets market growth and size.
One Trading is a regulated crypto trading platform providing secure access to the crypto-assets market. With our reliable and user-friendly platform, users are able to easily buy and sell digital assets with confidence.
Our compliance with financial regulations ensures that users are safeguarded when trading crypto-assets, while the intuitive interface allows traders to quickly and conveniently conduct trades. Additionally, our exchange also offers educational resources, transparent feed and tools to help traders better understand and leverage crypto market trends. By combining its regulatory compliance with its advanced platform features, One Trading is an ideal choice for both new and experienced crypto traders.
Technical analysis (TA) remains a somewhat controversial topic in the crypto-assets trading realm due to market volatility, its relative youth, and its susceptibility to sentiment. However, the value of TA in predicting the crypto-assets market is becoming increasingly evident.
A look at digital assets charts over the years reveals numerous candlestick and line chart patterns that confirm TA's effectiveness.
In the following section below, we will explore a few of these scenarios from the last decade.
Numerous candlestick patterns exist, but they all share a common theme: green candles signify bullish forces or a bullish trend (depending on the timeframe), while red candles indicate bearish forces. There’s an overview of TA pricing patterns here.
Moving averages track an asset's average price over a specific period, in this case, crypto-assets, over time. Timeframes may vary, but the significance of moving averages lies in their ability to highlight both long-term and short-term trends.
By examining snapshots of an asset's price across various timeframes, such as Bitcoin, traders can identify a "Golden cross," signifying that recent prices outperform older ones and suggesting an impending bullish trend.
Bitcoin's 2021 Golden Cross: In November 2021, Bitcoin formed a golden cross (see the green circle), that was followed by a significant rally that culminated in Bitcoin reaching its all-time high of over $68,000 shortly thereafter. This example demonstrates how moving averages can offer insight into a bullish market trend.
Support represents a price floor, where prices tend to rebound, while resistance acts as an impenetrable ceiling. Both support and resistance levels are vital because they assist traders in determining when to buy (usually at support) or sell (usually at resistance).
Support and resistance levels serve as the market's collective memory, and understanding them can provide a strategic advantage. When resistance levels are breached, they typically act as the new support level and vice versa when a price falls below the support, that previous support acts as a resistance level.
Other technical indicators include the Relative Strength Index (RSI), which acts as an investor's compass for identifying potential reversals and rebounds, and Fibonacci Retracement levels, which resemble springs beneath the market's feet.
In the global market, understanding and analysing price trends require consideration of the timeframe, which informs your investment decisions and expected holding or trading duration.
The significance of the timeframe lies in the following distinctions between long-term and short-term trends:
Long-term price trends can be likened to marathon races, distinct from sports more reliant on sprinting. They encompass extended periods, often spanning months, quarters, and years. Long-term trends are influenced by fundamental factors such as technological innovations, adoption rates, macroeconomic events, and more. Certain holders of crypto-assets may take the long-term view of crypto-asset prices and look at charts with monthly, quarterly, or even yearly views on their price chart.
For example, Bitcoin's ICO-fuelled bullish price trend from 2016 to 2018 exemplifies a long-term trend. Long-term trends offer a broader perspective on all virtual currencies' potential price trajectories.
In contrast, short-term crypto-assets market trends unfold over days or weeks and are frequently shaped by news events, market sentiments, and trading activities. The 2017 crypto boom, which occurred over a brief period, serves as an excellent example.
Short-term trends are primarily driven by media hype, speculative trading, the influx of retail investors, and similar factors. These trends are valuable for traders seeking to capitalise on price fluctuations within a brief timeframe.
Day traders, for instance, will be looking at 1-day, 4-hour and even 5-minute price charts. Understanding the distinction between long-term and short-term trends is essential for prioritising your investment or trading timeframe as an investor or trader.
The global crypto-assets market is in an early-adoption phase and gaining traction and institutional buy-in seen by the development of CBDCs, crypto regulation (e.g. MiCA), and crypto-asset ETFs. The global crypto-assets market cap in just a decade crossed the Trillion-dollar (USD) mark. This hasn't been without market crashes.
Governments, retail and institutional investors are already adjusting to this change, and blockchain technologies behind crypto-assets continue to iterate and advance. Understanding crypto-assets market dynamics and trends is crucial for investors and traders looking to navigate bull and bear markets.
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