Lessons from the market
Many market participants credited the market rally solely to the Chinese president, whereas in fact, there were several factors in play. Due to the prolonged period of market weakness, many crypto investors had started shorting the market. As the market continued with its decrease week after week, the short sellers were becoming more aggressive. A short squeeze was imminent and just a spark was needed for the market to rebound. This time, the crucial signal happened to have come from China.
Hereby, the most important lesson has been shown by an immense increase in prices that followed the event in less than 12 hours. During this short time, many cryptocurrencies gained more than 30% and Bitcoin appreciated by nearly 40% which was its largest single-day gain in six and a half years. This is an explicit reminder that the crypto market is still at a very early stage and is prone to massive movements in a very short period of time.
This time, the movement happened on the positive side. However, it could have easily taken the opposite direction – now imagine the market losing 40% in 12 hours. October’s shift is an admonition that such a colossal decrease can happen anytime and it is very important to keep this in mind when developing any crypto investment strategy. An old stock market saying goes:
Take care of the downside and the upside will take care of itself.
As with any other saying, its wisdom stems from real-life lessons which many have learned the hard way.
Traditional market participants are supporting the crypto ecosystem
At the beginning of October, the World Federation of Exchanges (WFE) asked the UK financial regulator FCA not to ban the sale of crypto derivatives to retail consumers – a move which they have been considering since July. This demonstrates that the traditional financial industry carries a very strong interest in the crypto market.
WFE members include global industry leaders such as Nasdaq, Intercontinental Exchange (ICE), and CME Group. Many traditional market participants have invested a lot of money and other resources into the development of crypto-related products and services, and the aforementioned expression of support is another clear indicator that the crypto is here to stay.
Adoption. And some more adoption.
Contrary to the opinions of some market observers, Bakkt is staying strong on its way to becoming one of the leaders in the crypto market. In my previous market commentary, I stated:
I remain confident that Bakkt’s volume will significantly increase in the future. It takes time for investors and brokers to accept the new product.
In October, Bakkt’s highest daily volume already surpassed $10 million and I expect this figure to continue rapidly increasing in the coming months.
The chairman of the US Commodity Futures Trading Commission (CFTC) stated that he believes Ether was a commodity (not a security). This statement should facilitate the development of Ether futures trading and represents yet another token of the crypto adoption.
In some market participants, the recent weakness of the crypto market has induced old fears about the future of this new ecosystem. Yet, many considerations in this commentary testify to quite the opposite – that the crypto is well on its way into the mainstream and already far beyond the tipping point. It is important to be patient and, as always, to have the appropriate risk controls in place.