As the price of Bitcoin remains stuck between $5,500 and $8,500 for three months now, the Bitcoin trading community wonders when the spell will break and in which direction.
Kevin Lu, the director of quantitative research at Element Digital Asset Management, a full-service advisor for the digital asset economy, said the Bitcoin market is in a reflexive state and its range trading is due to being dominated by short-term market participants.
Boring Bitcoin Market Stuck Between Day Traders and Lack of Narrative
Bitcoin has been challenging the $7,000 handle since Tuesday, but a definitive break above it hasn’t been on the cards as of yet.
The trading of the number one cryptocurrency in the market, with 53.4% dominance according to CoinMarketCap, has become boring. That opinion has been shared since late April 2018 as DataTrek expert Nicholas Colas said “it needs a new narrative”.
As August comes to an end and the trading industry returns from summer holidays, Bitcoin traders grow anxious as the market remains stable following one of the most volatile price fluctuations seen in history. This has pushed the cryptocurrency to the $20,000 area and the Bitcoin market to over $330 billion in value.
Behind the still waters is the dominance of short-term traders, wrote Thejas Nalval, portfolio director, and Kevin Lu, director of quantitative research at Element Digital Asset Management.
“Within our own team, we tend to believe the market is in an ultra reflexive state currently. It moves within a range in response to seemingly every bit of news […] This is likely the result of trading having been dominated by short-term players that are using structured derivative vehicles with leverage to express intraday speculation.”
Nalval’s report compared Bitcoin trading to Brick Breaker, a video game in which the player must smash a wall of bricks by deflecting a bouncing ball with a paddle.
While day traders could be responsible for the ranging market Bitcoin is stuck in, the cryptocurrency may need something big to reactivate the long-term trend. Sam Doctor, a data analyst at New York-based Fundstrat, argued that, as an effective hedge of the financial markets, Bitcoin may prove itself when other markets start to fall.
“One of the reasons to own cryptocurrencies is because they are an effective hedge. Until something happens to disprove that thesis, you aren’t looking to sell them so long as other asset classes are falling.”
The cryptocurrency market is printing gains on Friday, with Bitcoin trading +1.15% higher (24-hour change), according to CoinMarketCap.