Crypto outlook: Is Bitcoin overdue for a correction?
While positive industry developments and Bitcoin’s recent price action have lifted the entire cryptocurrency market to over $188 billion, does the USDT debacle cast a shadow over a prospective long-term trend reversal?
There have been a plethora of news reports pointing towards clear institutional adoption over the last couple of months, which in all likelihood is a contributing factor to the recent 4-month long price spike from fundamental perspective. Indeed, more liquidity means increased trader confidence, bumping up transaction volumes which in turn have been historically indicative of increased green candle activity. Considering the widespread view that traders “buy the rumour and sell the news”, it’s interesting to see this upward price-action flying in the face of contemporary market trends.
Indeed, cryptocurrencies are climbing quite quickly, with the top dog of digital currencies topping out at $5,800 as per figures from Coinbase. Taking an overview at the broader picture, one can see a clear ongoing rally since the initial spike in April and the great crash of November and December. Whether it’s Facebook’s suggestive moves towards stablecoin integration on Whatsapp (presumably similar to WeChat), JPM Coin, EY’s Nightfall launch on Ethereum or Samsung’s nebulous nod of approval for an internal Ethereum-based blockchain, the market seems to be reacting to a series of confluent factors that all point to reinvigorated market confidence. More over, as per a report by Adamant Capital — which has a noteworthy track record of sniping long-term BTC bottoms — Bitcoin is currently hugely undervalued in the grand scheme of things.
The USDT debacle
That said, one cannot exclude the grim reality that is Bitfinex’s recent confirmation of fractional reserve banking. The general counsel of Tether Limited confirmed in written evidence that only 74% of stablecoin USDT is backed by reserves, and customers were not notified of this fact until now.
In addition, on February 27, Tether Limited took the sneaky route and quietly adjusted its USDT collateral policy to include other assets and future receivables from third parties alongside cash and cash equivalents. This pretty much completely annuls Tether’s fundamental 1:1 claim with the US Dollar. Needless to say, this is bad practice 101 and it wouldn't be at all surprising if we are currently witnessing another Bitconnect in the making.
This comes as the New York’s attorney general accused Bitfinex of hiding a loss of about $850 million in client and corporate cash. In response to these allegations, Bitfinex insists the funds haven’t gone missing but that the exchange money was deposited with a Panamanian-company called Crypto Capital and through no fault of their own, seized by government authorities in the U.S., Poland, and Portugal.
It’s worth noting that USDT still has 75% stablecoin market dominance, so if the U.S. government were to forcibly close down Tether’s operations completely then that wouldn't bode well for anyone with skin in the game.
Truth be told, if Tether doesn’t find a way to materialise these funds and conduct a formal and recognised audit, then it’s only a matter of time before this house of cards comes crashing down.
Technical picture
From a technical perspective, Bitcoin faces heavy resistance at the $6,000 level which previously held as support for a 9-month stretch last year. On the flip side, short term support can be expected at the $5,300 and $4,800 levels. Many traders are naturally eying the golden cross, which is when the 200-MA (or EMA) crosses the 50-MA — often indicating a more sustained uptrend.
Meanwhile, the RSI trend line present since November of 2018 has been marginally breached, indicating that a correction of sorts is overdue.
This is not financial advice.
