Recurring market commentary on what's happening in the crypto markets, summarized by the Crypto Broker team at Crypto Finance AG.
Market commentary
Good Morning!
There has been a lot of bloodshed in May 2021. When you look at the chart below, you will even see that May 2021 was the bloodiest in the history of bitcoin's existence.
All of my followers know that I do not like to label or name triggers that cause price moves. I prefer analysing and comparing what the market structure was before a larger move to how things look afterwards.
I already mentioned on TA-Tuesday that (at least for me) it was not that easy to spot the blow-off top. The two biggest assets (bitcoin and Ethereum) supported each other, and this kind of distorted the massive amount of leverage that was in the system.
From a macro point of view, we saw a flurry of positive comments from the institutional side. Prominent hedge fund managers spoke about how they already owned bitcoin or were in the process of setting up funds that will enable then to buy and hold on behalf of their clients. Various companies announced that they have bitcoin on their balance sheets, and several larger banks took a negative stance towards bitcoin.
I thought that we were now at the beginning of a larger scale adoption phase (where institutional money starts flowing in). This belief kind of blinded me to the lurking risks that were there all the time. E.g. potential regulatory setbacks and the old topic of environmental concerns.
Markets do not go up or down in a straight line... Corrections, consolidations, and quick countermoves happen all the time.
This correction hit the market pretty hard. Several risk factors boiled over for a very short period of time.
- Leverage
- Environmental concerns: this will slow down corporate adoption (bitcoin on balance sheets)
- Regulatory setbacks: e.g. China starts to ban "dirty" bitcoin mining
My medium to long-term price driver has always been large scale adoption in combination with the scarcity of bitcoin. It is a powerful combination, which can keep the skew of higher demand versus supply for a long period of time.
Now, large scale adoption has taken a substantial hit, but this is not a bull trend breaker. None of the regulatory setbacks are game changers. Additionally, the traditional finance system is still in bad shape and inflation is lurking around the corner. Nothing has changed, and all of this supports my case for a higher bitcoin price. My 50 cents to this is that current redistribution or consolidation will take a little longer and might be painful for impatient retail traders/investors. But it has the potential to initiate a second wave of institutional adoption, which I believe will occur on a much larger scale next time.
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