Daily Market Analysis: New Year’s Eve Edition

2018 in Hindsight: Do Not Forget Where the Cryptocurrency Market Was When 2017 Began
Daily Market Analysis: New Year's Eve Edition

2018 in Hindsight: Do Not Forget Where the Cryptocurrency Market Was When 2017 Began


This is the last day of cryptocurrency trading for 2018, and it has been a wild year, with Bitcoin dropping from over  USD 20,000 on 17 December 2017 to less than USD 4,000 today. The other major cryptocurrencies, like Ethereum (ETH), Ripple (XRP), Litecoin (LTC), Dash, Monero (XMR), and Dogecoin (DOGE) have followed Bitcoin into the bear market. Further, increasing Securities and Exchange Commission (SEC) enforcement has made initial coin offerings (ICOs) effectively illegal in the United States, which has brought the ICO market and the numerous cryptocurrencies involved to a standstill. The total cryptocurrency market cap has declined from USD 830 billion to USD 127 billion during 2018, an 85% crash.

That being said, the price of Bitcoin on New Year’s 2017 was less than USD 1,000, and the total cryptocurrency market cap was merely USD 18 billion. The Bitcoin and cryptocurrency markets have more wealth and value than 2 years ago, on the order of hundreds of percent, and people lose sight of this fact because of the severity of the 2018 bear market. Aside from increased cryptocurrency prices and market caps, there are many more blockchain and cryptocurrency companies than 2 years ago. In reality, the cryptocurrency market is looking better than ever despite the overall negative sentiment in the public and mainstream media.

Bitcoin Outlook for January 2019


The price of Bitcoin has been showing weakness in the last days of December 2018, with numerous ‘red candles’ on the 2-hour chart, which are large sell orders dumping at price lower. The biggest event at the end of December was the Chicago Mercantile Exchange (CME) Bitcoin futures expiration on 28 December. The price of Bitcoin crashed from USD 3,750 to USD 3,550 right before the expiration, likely the result of ‘banging the close’. Essentially, when Bitcoin futures traders on CME take out a short position for the month, it is common for them to manipulate the market lower right before the contract expires to increase their short profits, and this is called banging the close. A strong correlation between Bitcoin’s market behavior and the CME futures expirations has been noted throughout 2018.

Generally, during the first week of a futures trading month, the reaction of Bitcoin’s price is a good indication if the market will go up (long) or down (short) during the contract period. The red candles during the first several days since the contract expiration are not a good sign, but it is too early to tell if CME Bitcoin futures traders have collectively decided to go long or short.

The stock market may play an active role in determining Bitcoin’s fate during January. Bitcoin was created in 2009, and the stock market has been consistently in a bull market until the last few months of 2018, with the Dow Jones Industrial Average (DJIA) declining about 4,000 points since October.

It has long been theorized that Bitcoin can be used as a safe haven asset if the stock market ever entered a bear market, since Bitcoin is independent of the stock market. However, Bitcoin has been an unneeded safe haven for its entire existence, since stocks were performing strongly from 2009 through October 2018.

It will be important to watch the stock market over the next week. If the stock market goes down further and solidifies fears of a bear market, then Bitcoin should experience upward pressure. This could lead to CME Bitcoin futures traders taking up long positions for the month. If the stock market recovers during the next week, then that could lead to CME Bitcoin futures traders taking up short positions for January.

Ethereum Constantinople Fork Approaching


As for the rest of the cryptocurrency market, major cryptocurrencies including XRP, Ethereum, Bitcoin Cash, EOS, Stellar, Litecoin, Monero, and Dash are down 2-3% today. The stock markets just opened and the DJIA is up 200 points as of this writing. If today’s stock rally strengthens, the losses on the crypto market could intensify.

Ethereum is currently at USD 137 with a market cap of USD 14.3 billion. Ethereum will be having a fork in the middle of January, code-named Constantinople, and this should be the driving factor for the Ethereum market. A conflict could break out between Ethereum miners and Ethereum developers, since block rewards will be slashed from 3 Ether to 2 Ether, and ASIC mining will possibly be blocked. Ethereum miners have already been struggling during 2018 due to the decline in Ethereum’s price from USD 1,400 to lower than USD 100 during part of December. This slashing of the block reward could be the nail in the coffin for many Ethereum miners. A blockchain split that results in a new version of Ethereum that is favorable for miners is possible.

Despite the potential contention, it is possible that Ethereum’s price will rise relative to other cryptocurrencies pre-fork, due to excitement about the new features coming to Ethereum and the lowering of the inflation rate. This sort of price rise was observed before the Bitcoin Cash fork, despite it being obvious that a major conflict would break out when the fork finally came. Therefore, perhaps Ethereum will rally during the first half of January, but it also depends on the overall crypto market situation. If the crypto market continues to be bearish, then an Ethereum speculative rally could be negated. If the crypto market moves into a strong rally due to falling stocks and CME Bitcoin futures traders taking up long positions, then the Ethereum rally could be amplified.

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