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Crypto trading forecast

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So-called intraday crypto trading, i.e. based on daily movements, does not need a real forecast because the scenario is constantly changing. 

However, if you focus on medium-term trading, then some predictions are possible. 

The situation in the crypto markets

The crypto markets have been relatively static for several months now. 

There are some individual cryptocurrencies that have made significant moves, but in most cases since March until now, these have almost always been moves that have receded fairly quickly. 

If you look at the total capitalisation of the crypto markets, it is currently around $1 trillion, which is similar to where it was at the end of January. 

In fact, it was more or less at this level at the beginning of November last year, just before the FTX bankruptcy, although it hit an annual low of below $800 billion at the end of December. However, this fall was fully reversed in January 2023 and since then a very long lateralisation has begun, which is still ongoing. 

In fact, it reached almost $1.3 trillion after mid-April, only to fall back to a thousand in mid-June. 

It should be noted, however, that Bitcoin’s dominance has risen from 40% to almost 50% since the beginning of the year, suggesting that it is mainly the price of BTC that is keeping the market capitalization high, while that of altcoins is falling.

Crypto trading: the medium-term outlook

All this suggests that the crypto market as a whole hasn’t moved much in 2023, apart from numerous intraday movements, some of them significant, and the January recovery to pre-FTX levels. 

However, this trend could come to an end by the end of next year, as the April halving could trigger another one. 

One prediction that can be made in this regard is related to what is happening in China, bearing in mind that the trend in the crypto markets is still heavily influenced by the price movements of bitcoin, and that these are heavily influenced by how liquidity moves in the financial markets. 

The situation in China

China has a couple of serious problems at the moment. 

The first is a kind of latent economic crisis, which is not clearly visible in the data, but which is pushing whole sectors into crisis, starting with real estate. 

The second is the risk of deflation. 

To support the economy, the Chinese government seems to be considering a stimulus plan. 

Given that fighting deflation would require injecting liquidity into the markets, some speculate that the solution could be quantitative easing (also known as QE), which would both increase liquidity in the markets and stimulate the economy. 

There are also rumours, which have yet to be confirmed, that the Chinese government has already intervened in the financial markets to prevent contagion following the bankruptcy of Evergrande and other major manufacturers. 

If the hypothesis of future QE proves to be correct, this could be a major boost to the price of bitcoin, which could also trigger a new bull run in the crypto markets. 

Trading: Past cycles and the crypto market outlook

So far, there have been three halves of bitcoin. 

In each case, the year following the halving (2013, 2017 and 2021) saw a large speculative bubble inflate in the crypto markets. 

Bitcoin’s next halving will take place in April 2024, so a new bull run could theoretically be triggered in 2024/2025. 

Moreover, the 2021 bull run was already triggered at the end of 2020, also thanks to the immense QE of the US central bank together with the European central bank. In 2020/2021, on the other hand, the Chinese central bank did not launch a major quantitative easing campaign at all.

So there is some speculation that China could do its big QE in 2024/2025, which is exactly the time when a bitcoin bull run could be triggered. 

The retail problem

There is one problem though. 

In China, retail investors are still theoretically banned from crypto trading. 

However, it should be emphasised that the situation in Hong Kong has already eased and, most importantly, it is certainly not the retail sector that is driving the bull run.

In fact, the large amounts of capital coming into the markets from retail investors or retail speculators tend to arrive when the bull run has already started, i.e. when prices are already rising rapidly. 

Large Chinese investors and speculators, on the other hand, have no major problems operating abroad where crypto trading is allowed. 

So even in the absence of Chinese traders, a bull run could be triggered if the Cina initiates QE. 

The yuan problem

However, there is a more serious problem that undermines this underlying assumption. 

In fact, a full-blown QE, i.e. the creation out of thin air and the dumping of large amounts of yuan on the markets, would almost certainly cause the value of the Chinese national currency to plummet. 

The fact is that the yuan is already at its lowest level against the dollar in sixteen years, and China is not necessarily happy about that. 

Since March last year, the yuan has lost almost 14% of its value against the US dollar in just over a year and a half. When the financial markets collapsed at the start of the pandemic in March, the value of the yuan fell below $0.14, and now it has fallen below $0.137. 

It is not certain, therefore, that China will be willing to allow the yuan to depreciate further, but if its back is against the wall, it may even consider letting it fall below $0.13, as it did in 2007. 

At this point, it cannot be predicted with certainty that there will be QE by the Chinese central bank in the year of bitcoin’s fourth halving, but it is a hypothesis that cannot be ignored.

 Uncertainty and volatility reign in the short term, but things could change in the medium term 

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