Crypto Spring Has Begun in the Face of Mass Skepticism

By Thomas J. Lee, May 15, 2019

The 2018 crypto bear market was more painful than any other prior crypto downturn because many of those hurt were retail investors new to the asset class.  That 85% crushing decline not only wiped out investor capital, but sentimentwise left many of those newbies thinking Bitcoin and crypto broadly were declining into oblivion.

As bad as 2018 has been, 2019 has seen a surprising resurgence in crypto markets, both in price and dynamism, which naturally begs the question: Is  the “Crypto winter” over?

I think the Crypto Spring has begun and four important factors inform my conclusion: improving fundamentals and sentiment.  Price technical are positive, and the market appears to be reaching a supply/demand balance.

1. Fundamentals:  Bitcoin’s on-chain volumes are up year to date, the first increase since 2017.   Facebook, for example, is developing its own decentralized platform including a crypto-currency, and several banks have announced their own “stable coins” which are digital versions of cash.  Equally important, there’s been a surge in Bitcoin usage and volumes in countries where financial stability have worsened. Bitcoin and crypto have become a lot more useful in 2019.
2. Sentiment: Crypto rising on good news and shrugging off bad news. Despite several notable negative developments in 2019—among them that Bitfinex disclosed it received unorthodox funding from Tether to replace cash purportedly seized by governments—Bitcoin and the broader crypto market’s prices have largely absorbed this bad news and continued to rise. That’s a major shift from comparable 2018 dynamics and a great sign.
3. Price technical are positive: On April 23, Bitcoin saw a “golden cross,” which is the 50 day moving average crossing above its 200 day average.
4. Equilibrium: Initial coin offering funding has dwindled to effectively zero, so that the “get rich quick scams” are largely gone.  Bitcoin is the most important crypto asset at the moment, and its success creates a vast halo for the rest of the landscape.  This favorable supply and demand dynamics are unequivocally positive for crypto.

The bottom line is that the evidence is strong that crypto winter is over.  I think prices have bottomed and within the next 12-18 months, and we should be seeing new highs for Bitcoin and other useful tokens and projects.  An investor’s exposure to crypto rests entirely on individual risk tolerance and financial position.