In a late August Barchart article on the leading cryptocurrencies, I wrote:
Expect volatility to continue until regulators, governments, and other authorities recognize, legislate, and regulate the burgeoning asset class. Acceptance as a mainstream asset class will not occur until the debate between supporters and detractors reaches a compromise. Meanwhile, the controversy tends to increase as prices move higher, so expect the discussion about cryptos to decrease in intensity after the latest downside correction. As the market cap sits just over the $1 trillion level in mid-August 2023, the potential for significant systemic risks has declined.
Meanwhile, the asset class has been anything but volatile over the past months. On October 18, the market cap stood at $1.08 trillion, virtually unchanged from August. Cryptos are in a coma as the bullish and bearish factors prevent a significant rally or selloff.
Sideways trading in Bitcoin and Ethereum
Bitcoin, the leading cryptocurrency that rose from 5.0 cents in 2010 to over $68,900 per token in November 2021, is one of the most volatile assets in history. However, in 2023, the price range has narrowed, considering the explosive and implosive price action over the past thirteen years.
The chart shows the $16,486.75 to $31,765.71 2023 trading range. Since April 2023, the range narrowed to $24,815.78 to $31,765.71.
As of October 18, Bitcoin had over half the cryptocurrency asset class’s market cap, with Ethereum, the second-leading crypto, possessing 17.5% of the $1.08 trillion market value. Ethereum rose from $6.07 in late 2016 to a record $4,865.426 high in November 2021.
In 2023, Ethereum’s 2023 trading range has been from $1,191.123 to $2,137.77.
While dramatic rallies and correction have been the cryptocurrency market’s hallmark over the past years, 2023 has been a quiet year of mostly sideways trading ranges.
FTX eroded confidence
The trial of Sam Bankman-Fried is in full swing in New York, with the former crypto king facing decades in prison. His company, the now-bankrupt FTX, was worth $32 billion at its peak.
The FTX failure followed on the heels of other exchange and crypto-related failures over the past years. The first exchange that went belly-up was Mount Gox, a Japanese crypto exchange that failed in 2014. FTX is the latest failure that has eroded investor and trader confidence in the asset class. Market participants and investors lost fortunes, that has caused many to retreat from the market.
The war in Israel is another blow to cryptos
On October 7, Hamas terrorists slaughtered innocent Israelis, leading to a hot war in the Middle East. U.S. legislators are looking into the role cryptos played in the attacks. Detractors, like Charlie Munger, believe cryptos run “contrary to the interests of civilization” because of the anonymity that encourages nefarious characters worldwide to use them for financing. Last week, Senator Elizabeth Warren said, “The danger of crypto-financed terrorism is real and should be an urgent priority for Congress. There’s a growing bipartisan coalition of senators who are committed to passing this bill and fighting back against terrorism worldwide by choking off the financing.” Senator Warren has championed a bill imposing new anti-money laundering rules on crypto that the sector has tried to quash. According to crypto analyses cited by the Wall Street Journal, digital wallets linked to Hamas and Palestinian Islamic Jihad have received up to $134 million since 2021.
Government confidence erodes- A bullish factor
While a rising number of U.S. and European legislators could regulate cryptocurrencies out of business, that fact is that fiat currencies depend on the full faith and credit of the governments issuing legal tender. The tense geopolitical landscape, bifurcation of the world’s nuclear powers, wars in Ukraine and the Middle East, sanctions, and deteriorating relations between Beijing and Washington make cryptos more attractive as they transcend borders and are apolitical currencies.
Only invest what you can afford to lose
Bullish and bearish factors pull Bitcoin, Ethereum, and many other cryptocurrencies in opposite directions in October 2023. While many government leaders would like to regulate them out of existence, the libertarian means of exchange offer an alternative to fiat currencies under inflationary and geopolitical siege. The U.S. dollar has been the world’s reserve currency for decades, but its role has diminished due to U.S. debt, inflation, and geopolitical turmoil and division. The dollar’s decline could boost crypto values if government regulators fail to develop sensible regulations.
Cryptos are one of the most volatile asset classes in history, and the price variance looks set to continue despite the narrow trading range in 2023. Boom-and-bust price action means investors and traders should only invest capital they are willing to lose, as the potential for significant gains comes with the risk of total loss.
Cryptos remain in a coma compared to past years because the bullish and bearish factors pull them in opposite directions. The longer the battle continues, the more likely a dramatic move will occur that either takes the values far higher or pushes them into a bearish abyss.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
