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Could Declining Prices Actually be Increasing the Value of Cryptos?

By Eliman Dambell

The interpretation of value can be described as relative and based on several factors, individual perception being one. The crowding of individual opinions has seen a larger narrative drawn in the understanding of general value, whether it be monetary, sentimental or material.

In the world of cryptocurrency, as it relates to early participants, value was initially based on change and the potential for a revolutionized alternative to the current fiat monetary system, which some see as failing. As those early hopes for cryptocurrency began to see a rise in promise, the chances of change increased, as did the monetary value associated to them. This brought in a secondary type of participant, who sees value as based on bottom-line earnings.

As a result, Bitcoin, Ethereum, XRP and Litecoin (which I describe as the four horsemen) are engulfed in financial market speculation, with traders and investors betting on which will be the biggest proponent of the change on which cryptos were founded.

This market speculation has now given birth to a third value proposition: stability and maturity. In financial markets, what we saw in the early days of cryptos were ultimately straight line charts which were extraordinary. “No market goes up and up and up” they said, “it’s a fraud” they said, however with the recent market correction in 2018 where values of BTC and others fell 60%, we are seeing these markets mature, providing traders data on which to use in decision making.

This decline in 2018 has enabled the implementation of what traders know as technical analysis on several of these markets. Previously, and prior to the fall in monetary value, traders and speculators had little indication regarding where prices may go. There was no relativity, as everything was happening for the first time. Now we have what only time can provide, which is history, and the hope of if repeating itself is a fundamental element in the process of placing a well-informed trade.

The chart above encapsulates this; having the ability to use technical analysis has allowed us to paint a relative picture on the price action within BTCUSD. The two horizontal lines are known as support and resistance, or floors and ceilings in the market. These ultimately allow traders to see areas where the price of a market consolidates by having these caps. Support is seen as the point where the markets stop in a falling market, and resistance is the area where prices refuse to go over in a rising run. Currently we see $6,090.75 as the floor, with the next resistance point sitting at $11,118.23 and a historical ceiling of $19,807.24.

Using these simple tools, which weren’t previously credible as there wasn’t enough history to support the use of technical analysis, now allows traders to take educated guesses on where they believe prices will end up based on their historical movements. We now know the historical high, where there wasn’t a clear one before, we now know the support point or floor in the market where we didn’t before. When markets were falling and filled with prominent nervousness from speculators saying prices were heading to zero, we now have a point where a hard ground in price value seems to have been established, providing greater confidence.

In looking forward, those optimists hoping for another historic run in price action are likely looking beyond $19,807.24; pessimists who see this as a fraud with no inherent value might be looking at activity below $6,090.75. However in the immediate future we are approaching a resistance level of $11,118.23 in BTCUSD. Some state that, if broken, this will trampoline the markets to the heights we saw in early December. Similar patterns can be seen in some of the other Crypto horsemen.

So the question now is: has this vision we have obtained due to the market selloff put us, as speculators, in a more favorable position to guess future value? If so, then it can be argued that, although we are still far from their historical price valuations, cryptocurrencies have never been as valuable as they are today.

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