Last year saw a turbulent 12 months for global markets, and the performance of cryptocurrencies reflected this. Although digital coins are still a relatively new asset for trading, whether they take the form of a contract for difference method or some other financial instrument, how they go up or down in value during 2019 will be of great interest to many investors.
In 2018, there were many big developments on the world’s economic stage, with trade wars, oil production and Brexit all taking up many headlines and news stories. Wall Street saw highs such as the first trillion-dollar market valuation for a company and lows such as some of the much-lauded FAANG group’s shares falling as much as 20% at various points.
With so much uncertainty in the ‘non-crypto’ world, there are differing views on what this might mean for Bitcoin and other upcoming digital coins. Will the troubles of more established assets bring crypto into the mainstream, or will the overall volatility of the situation cause digital coins to fail?
Wall Street and other global stock markets had a bad end to 2018. December started with a fall of almost 800 points on a single day of trading on the Dow Jones Industrial Average, which in turn had similar effects on the FTSE 100 and the Nikkei Index.
Interactive Investor cryptocurrency expert Gary McFarlan said that key indicators show that the coming year could be a tough one for global markets.
“Judging by the flashing-red reliable recession-predicting metrics such as the cyclically adjusted price-earnings ratio (CAPE) and the looming inversion of the [US Treasury bond] yield curve […] then the end of the bull market certainly appears to be approaching,” he remarked.
However, as crypto assets are still somewhat distant from the wider global economic system, McFarlane thinks that a widespread slump could actually be good news in terms of rising values for digital tokens.
“Crypto enthusiasts will be hoping that if a bear market in stocks materialises, there will be a strong negative correlation (-1), where crypto rises as equities fall” he said.
One possible factor that could give crypto a slightly off-track impression in 2019 is that existing data only relates to how the sector has reacted to a wider market that has been performing well.
As Bitcoin started the ball rolling just after the global financial crisis hit in 2008, the entire span of the public development of digital currencies has taken place under a general picture of economic recovery. eToro Senior Analyst Mati Greenspan pointed out: “The catch is that crypto assets have only ever existed during a bull market, and we have no past data to show what they might do if stocks turn bearish.”
The idea that the growth in crypto assets has been entirely dependent on bullishness in global stock markets is something that traders should consider, especially if last year’s trends on Wall Street really do point towards a turnaround in fortunes that many observers feel is overdue.
Economies and politics
The wider global economy has also been causing some concern over the past year, and 2019 did not start out with any more certainties in place. Analyst Murad Mahmudov expects the global economic picture to at best remain stagnant and at worst become far more unstable, and the effects for digital coins in both cases could be far-reaching.
“Three regional economies are the most relevant for crypto, in order of importance: the US, Asia (specifically China, Japan and South Korea), and Europe,” Mahmudov said.
He added: “The first two and their capital flows are of the utmost importance to Bitcoin and its price, especially if accumulation is to take place prior to a new bull run. I remain bearish to neutral on the US overall health and bearish on everything else as compared to the American economy (with perhaps Japan and Switzerland as the most relevant exceptions).”
International efforts to regulate cryptocurrencies are playing a large part in their development. as are major influencers in valuations. This is where CFD traders may take a particular interest, as various strategies can come into play when attempting to work out the best time to take a position on crypto assets.
Late in 2018, the G20 Summit that took place in Buenos Aires seemed to call for an international tax on cryptocurrency transactions. Mahmudov thinks that little headway will occur on any coordinated international efforts for crypto regulations but does believe that individual countries will introduce new legislation.
With so many early crypto sector forecasts for 2019 being based on the circumstances that occurred in 2018, it is no surprise that volatility and uncertainty hang heavy in the air. The key fact is that so many of the major issues that influenced price values over the last year remain unresolved.
Brexit, the trade war between the US and China and the future of oil production are just three of the situations that are essentially too close to call but all moving inexorably to some conclusion. The outcomes of these issues and more will become clear soon enough, and at that time, the future direction of the crypto sector will also begin to fall into focus.