The crypto market gained over 280% since the beginning of this bull market, and we can expect a longer consolidation before the continuation of the bull run.

Quick summary

  • In this stage of the market, it makes sense to allocate a larger share of the portfolio to Bitcoin.
  • Weak hands are entering the market, contributing to increased volatility.
  • The larger and faster the advance in prices, the sharper the pullback. Don’t mistake this for a bear market.

Market overview

The month started with a minor correction with the loss of 10% in the first week of June. The performance was flat in the first half of the month as the market consolidated after a huge run-up in May. This was followed by a period of increased volatility: first, the market gained 49% in 12 days and then lost 20% in a single day. After a small rebound, the market ended the month with a gain of 21.6%. This marked the fifth consecutive month of positive performance for the crypto market, one of the longest such streaks in the last two and a half years.

Monthly Commentary Chart (Jun 2019)

Bitcoin outperformed altcoins the third month in a row. The small-cap altcoins performed especially poorly, and many ended the month in the negative territory. Some market participants believe that Bitcoin will be the best performing crypto asset of this bull run, but I don’t share their opinion. Bitcoin outperformance is a normal development in an early-stage bull market, yet as the market matures, more people will start shifting to riskier assets with higher return potential. Nevertheless, in the current stage, it makes sense to allocate a larger share of the portfolio to the largest cryptocurrency since we can expect a constant increase in demand for Bitcoin from institutional investors.

Don’t mistake the market corrections for a bear market

Several clients have asked us recently if this bull market has ended after the 30% drop in prices. It is important to look at this pullback in a broader context. The price of Bitcoin went from $7,500 to $13,800 in the second half of June, respectively 85% in only 17 days. The larger and faster the advance, the sharper the pullback. This dynamic is normal and healthy for the positive long-term development of the market. Moreover, it is nothing new.

Throughout the current bull run, which started on 15 December 2018, we can observe this dynamic several times. In the Bitcoin price chart of the current bull run, it is evident that after each substantial leg up, the market had retrieved and consolidated for some time, before continuing with the advance.

Bitcoin price chart

Another thing that we can observe in this chart is that each subsequent advance is more significant than the previous one, and consequently the pullbacks are becoming more severe. It is a sign that weak hands are (re)entering the market, and we can expect to see more of this in the future. This doesn’t mean that the bull market has ended; only the volatility is increasing, which is another sign that the bull market is entering the second phase.

The importance of a reliable market infrastructure

Despite the continuous development of the market infrastructure, the number of crypto exchanges being hacked is increasing. We witnessed seven large-scale security breaches in the first half of the year, with tens of millions of dollars stolen. A reliable and trusted market infrastructure is vital for the successful long-term development of the crypto ecosystem, and essential steps in this direction are being made.

More and more crypto exchanges are obtaining insurance policies to cover hacks and other risks. Others, such as Binance, have established recovery funds to compensate their clients in the event of a hack. Several South Korean exchanges have, after receiving the corrective recommendation from the regulator, updated their terms and conditions to accept liability for problems caused by cyber attacks or system malfunctions. The US exchanges LedgerX and ErisX have received approval from the US Commodity Futures Trading Commission (CFTC) to settle Bitcoin futures; more exchanges are expected to receive such approval in the near future. The approved exchanges can also offer their products to retail clients, not just institutional ones. I expect this to cause a substantial increase in demand for crypto assets in the coming months.

The impact of Facebook Libra on the crypto ecosystem

A lot has been written about this already in the recent weeks so I’ll keep it short. Regardless of how the Libra project develops, it will immensely help to spread awareness about cryptocurrencies across the world. If the project launches successfully, more than 2.7 billion people worldwide will get easy access to cryptocurrencies. There are currently approximately 1 million daily active Bitcoin addresses. Now imagine if only 1% of Facebook’s user base (i.e. 2.7 million people) starts exploring cryptocurrencies, what an enormous impact on the demand this would make.

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DISCLAIMER: This article is for informational and discussion purposes only and does not constitute a marketing message, an investment survey, an investment recommendation, or investment advice. The article was prepared exclusively for a better understanding of market dynamics.

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