Expert Insight

The Libra effect – don’t base your crypto trading strategy on Facebook’s fate

Herbert Sim, Head of Business Development at Broctagon FinTech Group, discusses how traders predicting crypto prices need to look at more than just the headlines

Facebook’s Libra announcement sent ripples through the crypto community, boosting Bitcoin’s value over $12,000 for the first time since the dizzying heights of early 2018.

As the US Senate grills Facebook about its proposed cryptocurrency, traders are watching anxiously, ready to sell at the first sign of disaster. This fits in nicely with the view in the crypto community that signals of widespread adoption are the main drivers behind crypto bull runs. If big players make moves like this, it not only builds confidence, but also puts pressure on others to follow suit.

While it does seem that the fate of Libra will have a huge effect on the crypto industry, it’s not the only factor at work. Crypto prices were already on the up before Facebook announced the ambitious project. This is partly due to moves from other large institutions, such as JP Morgan moving into the crypto space and the heightened demand for CME crypto futures. As large institutions are realising the opportunity cost of not being involved in crypto, they are dragging the market up with them.

However, for traders looking to predict and profit from moves in crypto, simply following mainstream activity isn’t enough to keep them ahead of the game. There are other factors at play here.

Betting on the future

Take the surge of new online casinos which only accept Bitcoin or Bitcoin Cash as an example. These venues are becoming an increasingly popular phenomenon, with internet traffic sources suggesting a significant rise in the number of users.

This isn’t only affecting a small section of the market. Where previously a myriad of factors has driven price surges and volatility, recent price moves can be almost directly attributed to the growth in users of the casinos. This is because increased activity means an increase in the number of Bitcoin transactions, which subsequently pushes prices up.

“If ideal market conditions continue, we could easily see Bitcoin hit $50,000 by the end of 2019”

Increased regulatory understanding

We’re also seeing some encouraging moves from regulatory bodies. The approval of the first crypto hedge fund by UK regulators suggests that they might be paving the way for crypto to go mainstream.

Should a solid regulatory framework be put into place for cryptocurrencies, institutions who had previously been dipping their toes into the trading ‘Wild West’ could decide they’re ready to take the leap.

A maturing market

Last year during the ICO craze we saw the launch of many exciting new projects. However, most of these concepts were not put into practice. As the market has matured, and projects like Libra have emerged, the space is finally evolving from proof-of-concepts to real, mainstream adoption.

We are also seeing moves towards more sophisticated crypto trading strategies, where traders are not only “hodling” but also looking at ways to profit from downwards price movements through short selling. The most popular instruments for doing so are futures and contracts for difference (CFDs). This is already appearing on several crypto exchanges – in fact, it is one of the key drivers behind the huge spike in trading volumes, as it allows traders to make leveraged trades.

Regardless of Libra’s fate, it seems things are looking rosy for crypto. With Bitcoin continuing to set record trading volumes, it looks like investor appetite is back on the up. Analyst reports are also generally bullish for the latter half of 2019, which is certainly encouraging. If these ideal market conditions continue, we could easily see Bitcoin hit $50,000 by the end of 2019. As a result, as long as traders take the time to fully understand the drivers behind crypto prices, they will be well placed to reap the rewards.

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