Boom & bust – Has bitcoin finally grown up?


The cryptocurrency market, and especially Bitcoin, has seen a marked slowdown in volatile price moves over the last 12-18 months, after the boom and bust era that proceeded it.

Price discovery has become easier, investors more professional and the hype surrounding all things ‘crypto’ has quietened. While volatility is expected to remain a dominant driver of price action in the future, it may well be that the cryptocurrency ‘Boom and Bust’ era is now firmly in the past.

  • Financial Markets – Boom, Bubble and Bust
  • Cryptocurrency Market is Maturing – Hype has Fallen
  • Technical Analysis Provides Clearer Price Discovery and Trends
  • What is the Future for Bitcoin?

Boom and Bust – Financial Market Manias

Throughout history, there has been a pattern of financial market manias and asset bubbles that have seen fortunes made and lost in a small timeframe, sometimes with little fundamental reasoning behind these moves. From the Tulip Mania in 1637 to the US stock market collapse, and from the subsequent depression in 1929 to the cryptocurrency Boom and Bust in 2017 – 2018, prices soar and slump to such an extent that rational investing and exiting of these markets becomes an increasingly difficult task. Investors are driven to invest in these markets by the fear of missing out and then find it difficult to sell their positions when everyone is exiting at the same time.

A Brief History of Major Financial Bubbles, Crises and Flash-Crashes 

Cryptocurrency Market Becoming Mainstream

One of the main drivers of the Bitcoin price boom was the overwhelming media interest stoked up around the cryptocurrency sector. As Google searches for Bitcoin hit their peak, so did the price, driving it to an all-time high of around $20,000. When the subsequent heavy sell-off took hold, media interest in Bitcoin began to wane before slumping alongside Bitcoin’s fall back down to $3,200.

It is likely that a lot of participants left the cryptocurrency market during this heavy fall due to racking up substantial losses, coupled with the fact that inexperienced traders are less likely to trade from the short-side of a market, especially after the previous sharp gains. Inexperienced traders are more likely to ‘buy the dip’, leaving themselves heavily exposed and at risk in a bear market.

Bitcoin Searches – Google Trends

Bitcoin Price – January 2016 – August 1, 2019

Chart courtesy of IG.

Technical Analysis Provides More Clarity

The bitcoin network started in January 2009 – over ten years ago – and now trades around the clock, seven days a week on a variety of trading platforms, both regulated and non-regulated. This split made accurate price discovery for Bitcoin, and most other crypto currencies, difficult, with some exchanges preferred by different time zones and customer bases.

As the cryptocurrency space became more popular with investors, trading exchanges became more advanced, offering better price discovery and history, making technical analysis easier and more accurate. Again, market maturity also helped to draw in more professional investors who look through short-term hype and noise and invest on a longer-term basis. There is also a raft of Bitcoin ETFs in the wings waiting for approval from the regulator, which would make it easier to invest in Bitcoin in a liquid, and safe, fashion.

See the 5 coins to 5 million list

Bitcoin’s Future – A More Tradeable Asset Class

With hype and extreme volatility leaving the market, and with price discovery and access becoming clearer and easier, Bitcoin as an asset class continues to mature. Other cryptocurrencies continue to find it difficult to gain investor acceptance – Bitcoin currently has a 65%+ market dominance – but in time may follow the market leader. Until then, however, Bitcoin will not only remain as the main tradeable cryptocurrency but will increase its financial market footprint. Volatility will remain, but price moves/percentage moves will not be as large and violent as before as a more mature market with increasingly mature investors helps Bitcoin come of age.

A Day Traders Guide to Trading Bitcoin and Other Cryptocurrencies

Author: Nick Cawley
Nicholas Cawley has more than 30 years of experience covering a wide range of financial markets and instruments. After nearly two decades of trading and broking a variety of fixed-income products, Nick turned his hand to reporting and analysing macro and micro events in the fixed income and foreign exchange sectors.