In case you are one of those believing that the crypto market performance during the past several months doesn’t have any sense, this article might be on your taste because it will try to talk about four of the main factors supporting the “market exuberance”. Keep in mind that eventually, markets will go down, but in the meantime, we traders must carefully assess the optimal direction to get involved, based on the clues the market is giving us.
# Cheap money the only game in town
The abundance of liquidity available in the financial system combined with derivative instruments based on cryptocurrencies had formed the proper cocktail for a new impulsive bull run. We’ve already talked about why Bitcoin can reach all-time highs in 2021 and since last week, the price managed to reach a new milestone for the year, breaking above $16,000.
# New optimism about COVID-19
On Monday, Pfizer announced that its COVID-19 vaccine produced immune responses in 90% of the cases, which was major good news for the market. Stocks and cryptocurrencies jumped, even though there could be some reasons to believe the market is taking this for granted too early.
We should wait and see more details because it would be critical to find out whether the 90% efficacy occurs for mild or severe cases. At the same time, most of the dozes will be available in Q1 2021 and they will need to be delivered at -70 degrees Celsius.
# Structural benefits with crypto
Fixed supply for Bitcoin, Ether, Litecoin, and other altcoins is creating a competitive advantage as compared to fiat currencies. Currency debasement will very likely occur during the next few years so investors are already looking after hard assets that could grow in value and protect their purchasing power.
Cryptocurrencies seem to be some of them. Based on the lessons learned from the crypto market performance this year, valuations can exceed all expectations and at a time when there are so many skeptics about the bullish run, a continuation higher occurred.
# Self-reinforcing market dynamics
The cryptocurrency markets are mainly driven by emotions and positive performances are fueling more optimism, leading to more buyers jumping in. This self-reinforcing dynamic pushed valuations higher and creates mini or large market bubbles. A reversion to the mean will occur at some point, but for now, buyers are heavily in control and it would be suicidal to take the other side of the market. We can’t anticipate the magnitude of this move, so it would be better to wait for topping signs first.