Cryptocurrency made its appearance in 2008, with the conception of Bitcoin, the first digital currency. Today, this market is going through a period of recession.
More information with Ayoub Arbi, Expert in crypto and blockchain technology
Do you believe that the cryptocurrency market will disappear in the long term?
The golden rule for success in any financial market is to accept that no one knows the truth of the direction of a financial instrument especially when talking about the short to medium term. The crypto market, being one of the financial markets, obeys this rule perfectly, especially with the fluctuations that happen from one day to another. The fundamental outlook, on the other hand, gives us a negative situation for this market, given the political, economic and health reasons.
Why is this market in recession?
At the moment, the crypto market is in a period of recession as it suffered a fall of more than 70% from the highs of November 2021, and a free fall of 50% from March of this year. Especially since we have been in a row and price monotony since the summer when the price of bitcoin varies between 18 and 25 thousand US dollars.
How to trade in a row on future markets?
Majority of the crypto and web 3.0 community hates a row especially when it comes to decreasing prices. On the other hand, only one segment prefers these kinds of ranges to exercise quick profits over short time frames, since they could buy at the low around 18 thousand and sell at the 25 thousand. That said, this type of operation remains dangerous, especially for novice traders, since unforeseen events can take place and cause them to lose a lot of money. My advice for investors is mainly to wait for the right moment, ie the moment when the trend is clear (either bullish or bearish). A break of this range can go in two directions, either down towards the 10 to 12 thousand dollar area or up towards the 30 thousand dollars which is the average price for many financial institutions or whales (no one physical or moral possessing more than 1,000 bitcoins). My preference is always to have liquidity to be ready for all situations, so I find it wise to split our money across different price points. I will give you a few examples to better illustrate the situation; 25% for bitcoin price at 19 thousand USD, 25% when bitcoin price reaches 15 thousand USD and 50% when bitcoin price reaches 10 thousand USD. In this way, we can limit our risk exposure, this is just a simple example and I advise to further divide our portfolio on different cryptos that have real solid projects to maximize our gains.
What are the informers to apply to identify a range in the financial markets?
From a technical point of view, it is quite simple to identify a range in the financial markets. We must use the graph of Japanese candles available for example on “Tradingview”.
During a range, we will have: relatively small candles, without a tail, which indicates a tiny fluctuation in the price. A zone that the price cannot exceed, on the rise, which is called “resistance” and a zone, which is falling, which is called “support”. And low transaction volumes.
How to create “day-trading” on the markets?
“Trading” in its general sense means exchanging, ie buying and selling. Currently, people use exchanges or “brokers” to do these types of transactions. “Trading” can be classified according to the type of market used by the “trader”.
First of all, there are the primary markets through centralized exchanges such as “Binance”, the “Kucoin” platform or “ByBit” which offer a primary market called “spot”. There it is possible to buy and sell the cryptos for their current price and the amount of money the person has in their possession. The same is possible on decentralized exchanges like “Pancakeswap”, “Uniswap”, “Sushiswap”…
There are many secondary markets, but the most used on centralized exchanges are futures and margin. Margin trading is a method of trading assets using funds provided by a third party. Compared to regular “trading” accounts, margin accounts give traders access to larger sums, allowing them to leverage their positions. Essentially, margin trading amplifies trading results, so traders are able to make bigger profits on successful trades. This ability to amplify profits makes margin trading particularly popular in low-volatility markets, including the international Forex market. Nevertheless, margin “trading” is also used in commodity and cryptocurrency stock markets.
In traditional markets, borrowed funds are usually provided by an investment broker. In cryptocurrency trading, however, funds are often provided by other traders, who earn interest based on market demand for margin funds. Although less common, some cryptocurrency exchanges also provide margin funds to their users.
Crypto-futures are contracts that represent the value of a specific “cryptocurrency”. You don’t own the underlying cryptocurrency when you buy a futures contract. Instead, you own a contract where you have agreed to buy or sell a specific cryptocurrency at a later date. Moreover, traders will use leverage to amplify their positions which can maximize gains.
We can also divide traders according to the time frame over which they operate. Scalpers are a group of people who generally rely on short timeframes that don’t exceed four hours to enter and exit a position. They use technical analysis and sometimes economic news.
Investors choose a more passive method where they rely on the fundamental part of the projects and rarely on the technical analysis. They are in the market for a long duration which exceeds one year.
By associating the technical analysis part with the seasonality of the markets, we have a “Bear market”. But how do you profit when prices fall?
A “bear market” is a prolonged and often volatile period of decline in the price of almost any asset. The general definition of a bear market in traditional financial markets is when asset prices fall 20% or more from recent highs amid negative sentiment regarding the price outlook. On the other hand, a “bear market” in cryptos, widely known as “crypto winter”, is a similar decline in the price of crypto market assets that often causes certain market projects to fail as they struggle to raise. funds and meet the expectations of users and investors.
A cryptocurrency bear market begins with an imbalance between supply and demand that sees most market participants on the sell side. Fear and uncertainty begin to creep into frothy market conditions and sales begin to outweigh demand, resulting in steep declines that fail to recover quickly. From a technical perspective, this translates to a series of lower lows and highs on a longer-term chart such as the weekly and daily chart.
Stablecoins lost faith with the downfall of the Terra Luna ecosystem and the destruction it caused in the crypto market. It should be understood that only one type of these stable coins can really cause problems if there are some flaws in the construction of the ecosystem, these are the algorithmic stable coins. These assets have staking protocols where they offer extraordinary returns but the risk is very high with this type of investment. There are others such as “stablecoins” attached to commodities, such as gold for example, or those attached to currencies such as the euro or the dollar and which are used to reserve liquidity in crypto. and carry out various transactions without having to resort to a bank.
Has the Covid-19 pandemic been a brutal trauma for the cryptocurrency market?
The Covid-19 pandemic crisis caused enormous changes around the world and fortunately we were able to escape it. However, the recovery was so fast as to be destructive. The United States caused massive inflation through its 2021 stimulus pack by printing more than 25% of historic US dollar reserves in less than eight months. Indeed, all currencies are collapsing against the dollar: the euro, the Australian dollar, the pound sterling, the yen, the Turkish lira, the Swiss franc.
It should be understood that bonds are securities that are issued by States but also by companies. Generally, when we will issue bonds, we will promise a certain interest rate, a concrete example of which: the price of the bond is 100, we offer you an interest rate of 1%.
Today, we are in a situation where interest is increasing by 5%. Can we expect a rate of 10% or 15%? It is not impossible. The person who bought a bond with 1% interest has therefore suffered a reduction in its price, but will receive its nominal. If you don’t hit the latter, you can get it back at the end of the period. Currently, bonds are collapsing because no one wants them. This is an unprecedented situation because all assets are falling and there is only one asset that is rising, the dollar.
Currently, all central banks are targeting an interest rate hike. What will this entail?
This situation will result in a recession. Because when we have very high interest rates, it will slow down the economy, and therefore companies will have to pay more. Companies that have a lot of debt are in trouble. Real estate around the world is problematic. Rising interest rates will lead to lower demand, falling prices, people unable to repay their credit, defaults and provisions on bank balance sheets because there will be loans that will not be repaid.
Currently, we need peace. What we are going through is a delusional situation. It’s not just Russia and Ukraine that are involved, it’s the whole world. We can expect a new paradigm especially with the alliance of China, Russia and India, on the one hand, and the huge economic crisis in Europe. The most important thing for investors is that there are amazing things to do, because the downside is part of the financial markets.