Cryptocurrency emerged in 2008, with the creation of Bitcoin, the first digital currency. Today, this market is going through a period of recession.
More information with Ayoub Arbi, Chief Business Officer of “Interactive Trade”.
Do you believe that the cryptocurrency market will disappear in the long term?
The golden rule of success in any financial market is to accept that no one knows the truth in the direction of a financial instrument, especially when talking about the short to medium term. The crypto market, which is one of the financial markets, obeys this rule perfectly, especially with the fluctuations that happen from one day to the next. The fundamental outlook, on the other hand, gives us a negative situation for this market, given the political, economic and health reasons.
Why is this market in recession?
Currently, the crypto market is in a period of recession as it suffered a drop of more than 70% from the highs of November 2021 and a free fall of 50% from March of this year. Especially since we have been in a row and price monotonously since the summer, when the price of bitcoin varies between 18 and 25 thousand US dollars.
How to trade consecutively in futures markets?
The majority of the crypto and web 3.0 community hates arguments, especially when it comes to falling prices. On the other hand, only one segment prefers this kind of ranges to take quick profits over short time frames as they could buy at lows around 18,000 and sell at 25,000. Having said that, this type of operation remains dangerous, especially for beginners, as unforeseen events can occur and cause them to lose a lot of money. My advice to investors is primarily to wait for the right moment, i.e. the moment when the trend is clear (either bullish or bearish). A breach of this range can go in two directions, either down towards the 10 to 12 thousand dollar range or up towards the 30 thousand dollars, which is the average price of many financial institutions or whales (no physical or moral possession of more than 1,000 bitcoins). My preference is to always have liquidity to be ready for all situations, so I find it wise to divide our money at different price points. I will give you a few examples to better illustrate the situation; 25% for the bitcoin price at 19 thousand USD, 25% when the bitcoin price reaches 15 thousand USD and 50% when the bitcoin price reaches 10 thousand USD. This way we can limit our risk exposure, this is just a simple example and I advise to further divide our portfolio into different cryptos that have real solid projects to maximize our gains.
What should the informants use to identify a number in the financial markets?
From a technical point of view, it is quite simple to identify a range in the financial markets. We will use the graph of Japanese candles available for example on “Tradingview”.
During a streak we will have: relatively small candles, without a tail, indicating a small fluctuation in price. A zone that the price cannot exceed, on the rise, which is called “resistance” and a zone that is falling, which is called “support”. And low transaction volumes.
How do you create “day-trading” in the markets?
“Trade” in its general sense means exchange, ie. purchases and sales. Currently, people use stock exchanges or “brokers” to conduct these types of transactions. “Trade” can be classified by the type of market used by the “trader”.
First of all, there are the primary markets through centralized exchanges such as “Binance”, the “Kucoin” platform or “ByBit”, which offer a primary market called “spot”. There it is possible to buy and sell the cryptos at their current price and the amount of money the person has in their possession. The same is possible on decentralized exchanges like “Pancakeswap”, “Uniswap”, “Sushiswap”…
There are many secondary markets, but the most used on centralized exchanges are futures and margin. Margin trading is a method of trading assets using funds provided by a third party. Compared to regular “trading accounts”, margin accounts give traders access to larger amounts, allowing them to leverage their positions. Essentially, margin trading amplifies trading results so that traders are able to make larger profits on successful trades. This ability to amplify profits makes margin trading particularly popular in low-volatility markets, including the international Forex market. Nevertheless, margin “trading” is also used in commodity and cryptocurrency stock markets.
In traditional markets, borrowed funds are usually provided by an investment broker. In cryptocurrency trading, funds are often provided by other traders who earn interest based on market demand for margin funds. Although less common, some cryptocurrency exchanges also provide margin funds to their users.
Crypto futures are contracts that represent the value of a specific “cryptocurrency”. You do not own the underlying cryptocurrency when you buy a futures contract. Instead, you own a contract where you have agreed to buy or sell a particular cryptocurrency at a later date. Furthermore, traders will use leverage to reinforce their positions, which can maximize gains.
We can also segment traders by the time frame they operate over. Scalpers are a group of people who generally rely on short time frames, not exceeding four hours, to enter and exit a position. They use technical analysis and sometimes financial news.
Investors choose a more passive method, where they trust the fundamental part of the projects and rarely the technical analysis. They are in the market for a long duration exceeding one year.
By connecting the technical analysis part with seasonal markets, we have a “Bear market”. But how do you profit when prices drop?
A “bear market” is a prolonged and often volatile period of decline in the price of almost any asset. The general definition of a bear market in traditional financial markets is when asset prices fall 20% or more from recent highs due to negative sentiment regarding the price outlook. On the other hand, a “bear market” in cryptos, commonly known as a “crypto winter”, is a similar drop in the price of crypto market assets that often causes certain market projects to go bankrupt as they struggle to raise funds and meet the demands of users and investors expectations.
A cryptocurrency bear market begins with an imbalance between supply and demand that sees most market participants on the sell side. Fear and uncertainty begin to creep into frothy market conditions and sales begin to outweigh demand, resulting in steep declines that fail to recover quickly. From a technical perspective, this translates to a series of lower lows and highs on a long-term chart, such as the weekly and daily chart.
Stablecoins lost faith with the demise of the Terra Luna ecosystem and the havoc it wreaked on the crypto market. It should be understood that only one type of these stable coins can really cause problems if there are any flaws in the ecosystem construction, these are the algorithmic stable coins. These assets have stake protocols where they provide extraordinary returns, but the risk is very high with this type of investment. There are others such as “stablecoins” linked to commodities, such as gold for example, or those linked to currencies like the euro or the dollar, which are used to reserve liquidity in crypto and carry out various transactions without having to resort to a bank.
Has the Covid-19 pandemic been a brutal trauma for the cryptocurrency market?
The Covid-19 pandemic crisis caused enormous changes around the world, and luckily we were able to escape it. However, the recovery was so fast that it was devastating. The US caused massive inflation through its 2021 stimulus package by printing more than 25% of historical US dollar reserves in less than eight months. In fact, all currencies are collapsing against the dollar: the euro, the Australian dollar, the British pound, the yen, the Turkish lira, the Swiss franc.
It must be understood that bonds are securities issued by governments, but also by companies. In general, when we issue bonds, we will promise a certain interest rate, a concrete example of that: the price of the bond is 100, we offer you an interest rate of 1%.
Today we are in a situation where interest is increasing by 5%. Can we expect a rate of 10% or 15%? It is not impossible. The person who bought a bond with 1% interest has therefore suffered a drop in price, but gets its nominal value. If you don’t hit the latter, you can get it back at the end of the period. Currently, bonds are collapsing because no one wants them. This is an unprecedented situation because all assets are falling and there is only one asset that is rising, the dollar.
At the moment, all central banks are targeting an interest rate hike. What will this entail?
This situation will result in a recession. Because when we have very high interest rates, it will slow down the economy, and therefore companies have to pay more. Companies that have a lot of debt are in trouble. Real estate around the world is problematic. Rising interest rates will lead to lower demand, falling prices, people unable to repay their credit, defaults and provisions on bank balances because there will be loans that will not be repaid.
At the moment we need peace. What we are going through is a delusion. It’s not just Russia and Ukraine involved, it’s the whole world. We can expect a new paradigm, especially with the alliance between China, Russia and India on one side and the huge economic crisis in Europe. The most important thing for investors is that there are great things to do because downside is part of the financial markets.