How will 2018 be remembered in the crypto history book?
If you asked somebody at Thanksgiving as Bitcoin was moving towards $3,000, you might have gotten two answers. The first, that crypto was in a bear market that might end next year. The second answer might be that 2018 was the end of crypto. Downside targets got lower by the day. To say it was depressing would be an understatement.
In reality, 2018 will likely be remembered as the year that there was a fast-moving correction in Bitcoin (BTC) of a long-term bull market. The correction washed out all the excesses of 2017. It also offered a unique opportunity for those new to crypto to enter the market and gave those who have been in crypto since 2014 yet another chance to add to positions.
The year was also a unique opportunity to embrace crypto as an alternative to fiat currencies in advance of a protracted down move in the U.S. dollar.
If you look at long-term charts of the Dollar Index (DXY), it shows a technical peak similar to other tops going back to 2001 (Figure 1). Looking at a more granular level, the gap down in the Dollar Index (UUP) seems to show the start of a long-term slide in the U.S. dollar (Figure 2).
Leveraging the negative view brings us back to a key Crypto.IQ thesis. Namely, we see Bitcoin (BTC) as an important part of the foreign exchange market. Not only is Bitcoin (BTC) an important part of the foreign exchange market because it’s a leading indicator in that market. It also had rallied $1,000 in the days before the actual major top in the dollar.
Think about that. Bitcoin (BTC) is so important, it was a first mover in the FX market in the great dollar top of 2018.
We see Bitcoin (BTC) demand increasingly eclipsing demand for other currencies vs. the dollar. Not only is this true for Bitcoin (BTC), it also could be true of all of crypto. We see proof of this in the chart of total crypto market cap (Figure 3). A major breakout is unfolding in this measure.
Let’s review the big themes of this article.
- No matter how bad it felt, 2018 was a Bitcoin (BTC) correction in an long-term bull market.
- 2018 was the year of a major dollar top and a down move that could last years.
- Demand for Bitcoin could be massive next year as a smart dollar alternative.
If those points make sense, it allows a transition to the Bitcoin (BTC) grand vision.
Many people talk about Bitcoin (BTC) going to targets that are well above the 2017 high of $20,000. When people make these pronouncements in the Twitterverse, there’s not enough space to discuss the catalyst. They discuss the price target, but few discuss how and why Bitcoin (BTC) makes that move.
One major catalyst is that Bitcoin (BTC) becomes a currency that is included in a diversified investment portfolio. That takes Bitcoin (BTC) on what Elliot Wave practitioners call a three-wave (Figure 3). In simplified terms, that means the Bitcoin (BTC) rally that is underway will be “impulsive.” Impulsive is a technical term that implies the trend could be orderly and methodical, but there could be limited dips.
Once people ascertain that a three-wave uptrend is unfolding in Bitcoin (BTC), we expect a rush to include Bitcoin in traditional investment portfolios.
Most diversified portfolios are 60 percent equities, 30 percent bonds, 5 percent cash, and 5 percent commodities or alternative assets. In 2019, we could see a huge shift in how these portfolios are constructed.
By the end of 2019, the mix might be more like 30 percent equities, 30 percent bonds, 30 percent Bitcoin (BTC), 5 percent Ethereum (ETH) or other altcoins, and 5 percent precious metals.
The traditional investment community might laugh at this allocation now, but that doesn’t mean the new “60-40” could become a “30-30-30” portfolio detailed above.
Bottom Line: As portfolios compete with each other in bear markets for both stocks and bonds, we see Bitcoin (BTC) and crypto playing an increasingly important role in asset management.
As Bitcoin (BTC) continues to move higher, we’ll continue to follow the guidance of the Crypto.IQ trading community. Calling an overall move higher is one thing. Trading it is another.
Please joins us as our trading professionals trade their way through one of the greatest shifts in the financial market history. Join us as we dive into the details needed to catch the move.