Surviving the Crypto Bear Market
“This price correction is a necessary “purge” that the market needs to clean itself up.” — Zach Le, Managing Partner
As many traders face tough market conditions in crypto today, they tend to be blinded by red candles and make uninformed decisions. It was a pleasure sitting down with Zach Le, Managing Partner at Trinity Blockchain Management, to discuss key points that influence crypto markets today and what investors should be looking at to moving forward.
Zach has been involved in cryptocurrencies since 2011 and previously worked on the institutional sell-side in the Forex and CFD markets. He was kind enough to share his valuable perspective from the buy side below. Enjoy!
Zach Le, Managing Partner at Trinity Blockchain Management
Retracing to a yearly low of $5,750, BTC is down 70% from its all-time high and is now back in its trading range of mid-2017. Trading volume has declined by almost 50% across all exchanges, and transactions are now down to roughly half of what it was in December of 2017.
Google search analytics for Bitcoin and cryptocurrency related queries are rapidly diminishing as well. It is evident that the retail frenzy is over, and most have either exited the market or are left holding the bag.
As retail investors exit the market, what is left is a mix of semi-professional, professional, and prop shops. These traders stay on to maintain liquidity and act mostly in a market maker role. This environment creates a trading space that is highly discouraging to what little remains for the retail pool. The market has become so bearish that positive news has little to no effect on price action.
On the backdrop of this bearish consolidation, it is important to note that Blockchain technology’s acceptance is steadily pushing forward. One sign of this is the emergence of institutional cryptocurrency pricing indexes. These major indexes include, but are not limited, to CBIDX (Coinbase Index), BGCI (Bloomberg Galaxy Crypto Index), and Houbi 10. Also, many government banking agencies have begun testing cryptocurrencies and its related technology.
Recently, the United States Federal Reserve of St.Louis has started posting BTC, ETH, and CBDIX prices on their website. The Bank of England is currently testing Blockchain technology for its remittances, and The ECB and Bank of Japan are currently studying blockchain for securities swap.
This price correction is a necessary “purge” that the market needs to clean itself up. The traditional market generally cycles within a 10–20 year period. Cryptocurrencies are no exception to such cycles. The only difference is the speed and intensity at which it occurs. The last year has seen a massive rally in the cryptocurrency market with many questionable projects raising a considerable sum of money. This flow of capital came mostly from retail and early stage institutions. The market has yet to see a full fledged institutional interest until now.
For many institutions, the cryptocurrency market is a sector that they want to be in but are currently unsure of the quality of the projects. Projects such as EOS and TRX saw a meteoric rally in 2017 and early 2018 based on the promise of a world-changing product and heavy marketing. However, neither of these networks have a fully functional mainnet at the time. Both EOS and TRX started their transition off of Ethereum’s network in summer of 2018. During the mainnet launch, there was a heavy selloff for both TRX and EOS as the transition had a few technical issues. Such corrections are healthy for the market as the retail crowd has overbought these networks.
Starting in 2018, we see an increasing flow from large-scale institutions into foundational sectors such as payment processing, institutional trading desk, consulting/advisory, and token projects. Examples include Circle (indirectly Goldman Sachs) acquisition of Poloniex and Coinbase’s launch of its custodial services. These are components that are necessary for the mainstream adoption of cryptocurrencies. The main driving forces for the market at this time are custodial services, regulatory requirements, and liquidity provisions.
I expect the cryptocurrencies market to remain in a neutral to bearish consolidation pattern for the next 1–2 years, and I will be extremely happy if the market picks up earlier and proves me wrong. From a fundamental perspective, this is a necessary period for the institutional foundations to be built. Regulation takes time. Custodial services require even more time as they must gain the market’s trust. Without regulation and custodial services, mainstream liquidity will remain dry as large institutions lack the facilities to enter safely.
Zach Le and the Trinity Blockchain Management team provide digital asset management and blockchain consulting services.