Bitcoin slays the bear

15 May, 2018

The cryptocurrency bear that has been wreaking havoc since January has finally returned to its den. While nearly all cryptocurrencies are on the road to recovery, there are very standout coins. The recovery, in other words, is relatively measured and gradual.

This is largely due to the come-along effect produced by bitcoin. Rather than recovering on their own merits or due to some big overarching factor - say, increased clarity in regulation, big adoptions, or taxes - altcoins are largely being tugged upward by growing strength in granddaddy bitcoin.

While nothing is absolutely certain in the crypto market, it appears that bitcoin's momentum will be hard to stop. To understand where it's ultimately going, it helps to understand how bitcoin reversed the bear market in the first place.

The Long January

Bitcoin prices appeared to be entering a death cross in late March.1 This price function is usually as ominous as it sounds. A death cross is simply when the line for a security's long-term moving average crosses over the short-term moving average. It's generally regarded as a bearish signal, and it sent at least some crypto watchers to their keyboards to predict prices below the $3,000/coin mark.2

A death cross, however, is only temporarily bearish. That is, it usually appears at the end of a long-term cycle. Since crypto prices in general have been languishing since January, the March appearance of the death cross gave some observers hope that a rally was imminent. Some outright said that the concept of a death cross and other technical indicators no longer applied to the crypto market.

"Stock market symbols and principals have no place in crypto right now," said crypto forum user Crypto-Pittsburgh immediately after the death cross, when bitcoin fell to just over $6,500. "This is the Wild West. Only fools try to use concepts of established markets to gauge a land filled with dreamers, drunks, geeks, scammers, and massive uncertainty."3

Those observers turned out to be correct, at least about the imminent rally. By April 25, bitcoin was hovering just under the $10,000 level. It has since moderated but remains above the $9,000 mark.

Rising Tide

As bitcoin goes, so does the crypto market in general.

This is easy to understand when you realize that most cryptocurrency transactions currently involve bitcoin in some way. Very few avenues offer fiat currency to cryptocurrency conversions. The few that do offer a relatively limited selection. bitcoin is almost always one of those selections. So, in order to purchase your flavor-of-the-month coin, you must first convert your fiat into bitcoin.4 This is a simplification, especially when Ethereum is taken into account, but for the vast majority of crypto newcomers, that's the process. For your average, newly created crypto buyer, bitcoin is familiar territory. It also is one of the most stable of the coins on the market, and it has received some institutional endorsements as a relatively safe - for crypto - store of value.5 There's little to no chance bitcoin is going to disappear overnight, and its developers are not going to skedaddle to the Cayman Islands and abandon the project if prices suddenly skyrocket.

So as bitcoin chugged its way out of the so-called Long January, altcoins followed in its wake. The usual flotsam and jetsam of pumps, initial coin offerings, surprise adoptions, and the like followed, as well, but the clear and indisputable market mover was the growing strength of bitcoin.6 Every coin relied on bitcoin as the foundation for its growth.

But Why?

We know that bitcoin's death cross reversal pulled the market in general out of its slump and reinvigorated the altcoin market by providing a stable platform for growth. But what spurred bitcoin out of its slumber in the first place? What factors led it to the death cross and beyond?

There are several factors at play, all hinging on the still-apparent dominance of bitcoin in the crypto market.7

The simple answer is that more buyers were willing to enter the market at a higher price. That's the easy explanation for nearly every rise in security prices.

The detailed answer is a little more complex.

The U.S. somewhat clarified its tax code near the end of last year, and it wasn't to the benefit of crypto traders.8 By striking down the "like-kind" loophole that many traders had been counting on to meet their obligations by the April 17 deadline, the U.S. Internal Revenue Service appeared to have sparked a bear attack. Either crypto traders would have to skimp on their tax obligations and risk the IRS' eventual wrath, or they'd have to sell off some of their crypto earnings to make tax obligations.

This situation didn't fully materialize, although it is unclear exactly what happened.9 It is possible that traders found other ways to meet obligations. On the other hand, it is possible that quite a few opted to take advantage of Satoshi Nakamoto's original vision for bitcoin - a currency free of independent third-party middlemen. That story will likely unfold over the course of the next several years, as the tax and regulatory environment surrounding cryptocurrency in general becomes clearer.

The next piece of the rising bitcoin puzzle involves favorable news from outside the U.S. regulatory sphere. As bitcoin began to show fundamental strength, France announced that it was cutting crypto taxes from 45 percent to 19 percent. Several large adoptions in the altcoin arena also took place. Since bitcoin serves as the gateway to altcoins, buyers struck with the infamous fear-of-missing-out bug had to turn to bitcoin to hopefully catch these altcoins on their way up. The usual paradigm of bitcoin's rising tide dynamic had turned into a feedback loop. As bitcoin under-girded the prices of less stable altcoins, those altcoins served as a vehicle for bitcoin's further growth. This will likely remain the case until fiat-to-crypto conversions are more widely available, at the very least.

Continued Growth

Wall Street observers are already taking note of the rallying bitcoin market. Some wild price predictions, per usual, have been made - $25,000 by year-end is one of the more conservative estimates. That's not too far from bitcoin's previous all-time high.10

Bitcoin is likely to remain the benchmark for the crypto market until something structurally changes in how the crypto sphere operates. There are some moves in that direction, but bitcoin still holds psychological dominance. Like it or not, when the Average Joe or Jane thinks about cryptocurrency, he or she is really thinking about bitcoin.

That means that future dips are likely to be the result of movement in the bitcoin market, and future rallies will probably have bitcoin to thank.

One forum user summed up bitcoin's future important in terms of established commodities.

"Data is arguably more valuable than oil or gold," said govols22. "But if people decide that bitcoin is better than a centralized, private bank-controlled piece of paper than bitcoin could be incredibly value [sic]. I believe that the trust in transparency of the blockchain could mean bitcoin has an immense value. The network effect will be what causes BTC to moon over time. The short-term bursts and corrections in the market don't matter in the long term."11


1) Staff, Investopedia. "Death Cross." Investopedia, 15 Feb. 2018.

2) "Why bitcoin's 'Death Cross' May Be a Bear Trap." CoinDesk, 28 Mar, 2018.

3) "The Death Cross Has Finally Occurred" Reddit.

4) Cryptocurrency Facts.

5) Fiorillo, Steve. "How to Make Your bitcoin an Investment." TheStreet, 26 Apr, 2018.

6) Forbes Magazine

7) Gough, Owen. "Bitcoin Price News: What Is the Price of bitcoin? Is BTC Going up?" 24 Apr, 2018.

8) Wood, Robert W. "House and Senate Tax Bills Kill Cryptocurrency 'Like Kind' Exchanges: Expert Blog." Cointelegraph. 30 Apr, 2018.

9) Ell, Kellie. "Bitcoin to Rally with Tax Day Pressure Eliminated: Wall Street Bull Tom Lee." CNBC. 16 Apr, 2018.

10) Ell, Kellie. "Alt-Coin Bear Market Is over, but bitcoin Is Still the Best Bet: Wall Street's Tom Lee." CNBC. 22 Mar, 2018.

11) "Value Is Always in the Eyes of the Beholder." Reddit.