Originally posted at: https://coinrule.com/blog/admin/team/let-the-music-play/ on Fri, 26 Nov 2021 11:54:56 +0000
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It has been a wild ride, indeed. Starting from the bottom in March 2020, the total market capitalisation has grown by over 20 times. What to expect now?
“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”
Chuck Prince, Citigroup CEO – July 9th 2007
This infamous quote may seem to work perfectly considering the current market conditions.
Despite higher volatility on the downside in 2021, the trend of the crypto market capitalisation has been growing steadily since 2020. The valuation traded most of the time within the green channel while having a brief deviation on the upside at the beginning of 2021. That was a sign that the market was over-heated, and that led eventually to a broader correction.
Projecting the retracements Fib levels of the up move from 2020 to early 2021, the correction found solid support at 0.5 level and then at the 0.23. That’s what you would expect from a healthy trend which is rebuilding momentum. Today the market is hovering around the previous all-time high levels. Should that hold, a new strong leg on the upside is likely.
The market is still in a bull cycle, and therefore you need to keep in mind two key elements.
First, the more the crypto prices consolidate in the channel, the more likely the market will experience a new blow-off move. As time passes, the magnitude of this move could be larger. As the channel’s top gets higher and higher, investors and traders will set their targets accordingly.
As a rough estimate, the target will be around 150% in one month, and in three months, it will be 250%.
On the other hand, never forget that the higher is the rise, the harder is the fall. We are likely at a mature stage of the bull market, which means that even if a 200% upside looks appealing, that comes with a downside risk of 70 to 80%. In this regard, the divergence on the RSI looms like a dark ominous over the market.
It becomes increasingly important to set your targets and comply strictly with your plan. Rotating gradually part of the portfolio into higher quality coins and stable coins will protect your capital when a more severe correction hits the market.
“Let the music play ” is the new mantra. As a reminder, the music stopped three months after Prince’s quote when the housing market bubble popped. History may not repeat but often rhymes.
Bonus chart : stable coins are the elephant in the room. Investors are not paying enough attention to the magnitude of growth of stable coins over the last couple of years. Only USDT and USDC have a valuation of over 110 billion, not including other similar USD-pegged coins like BUSD, USDT, and DAI.
All this liquidity is on the sideline and could represent a significant fresh new capital inflow for cryptocurrencies. On the other hand, as the market structure develops more and more reliant on stable coins, they become a potential single point of failure of the system. Meanwhile, it seems like most of the liquidity is seeking low-risk interests from DeFi protocols more than trying to chase more speculative opportunities.
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