Why bitcoin recovery has stalled

It's up 10% from its late-June low, but bitcoin’s bounce back has hit a snag. Award-winning cryptocurrency writer Gary McFarlane tells us why.

Bitcoin is up 11% to $6,526 over the past week as it rallies from lows at $5,900, according to research site cryptocompare. Nevertheless, the rally has paused for now with resistance at $6,700 proving to be a bridge too far. From a technical standpoint the price will need to consolidate and push towards $7,000 over the next few days if momentum is to carry through.

The bitcoin price action has been marked by two distinct bullish spurts, the first of which was last Friday when the price jumped $500 in short order on a surge in volumes. Something similar happened on Monday with the price jumping from a session low of $6,275 to $6,681.

Factors behind the stalled rally

A number of factors may have contributed to the stalling of the rally. US payments start-up Square, which recently acquired a New York bitlicence so that users of its Cash app in the US can trade cryptocurrencies, has withdrawn its application for a licence as an industrial loan company. However, it turns out that the withdrawal is only temporary as Square seeks to strengthen its application with the Federal Deposit Insurance Corp.

Tom Lee, the bullish Fundstrat Global Advisors founder who has kept his $25,000 price target all year despite the bear market, seemed to be walking back on that in comments made to CNBC. 

In a discussion about mining costs, a subject we referenced last week as the bitcoin price threatened to fall below breakeven, he said: "Bitcoin has historically traded at 2.5 times its mining costs. It's not out of the question that it could be over $20,000 by the end of the year at fair value." 

That seemed to imply he had trimmed $5,000 off his target, but clarified on Thursday that he was sticking with his original end of year price prediction. "What I was trying to illustrate was that given where mining costs will be and applying the historical average of 2.5 times mining costs, that would imply fair value over $20,000, roughly $22,000."

He continued: "We still think bitcoin can reach $25,000 by the end of the year or something like that."

Matthew Newton, an analyst at investment platform eToro, saw developments in the regulatory space behind the cooling off in bitcoin’s 10% advance.

Newton told interactive investor: "Despite making modest gains earlier this week, prices have stumbled again, most likely influenced by the Reserve Bank of India's decision to ban cryptocurrencies. These outright bans are not good for the industry, stifling development before the technology has had time to mature.  

"However, we are seeing promising signs from many other governments around the world, who are investing time to understand the technology before making an informed decision about regulation."

Another dampener for the crypto sector came from a site called Dead Coins that tracks initial coin offerings (ICO). It claimed that 800 ICOs are dead, because they are trading at less than one cent or are just outright scams or have closed their businesses. A caveat to that is that there are many tokens that trade at less than one cent and their valuation depends on how many tokens make up total supply.

Altcoins making a noise

In sympathy with bitcoin, which accounts for 42.6% of the total crypto market capitalisation of $268 billion, alt coins have been making gains too.

Although most coins are in the red at the time of writing, there are some standout winners for the week.

Among top altcoins seeing substantial gains is NEO, dubbed the "Chinese Ethereum", up 35%, after strategic partner Ontology's (ONT) mainnet went live and also helped by the news that it was opening up to allow more nodes on its network, often criticised for being too centralised. The NEO priced leapt 9% to $33 on the Ontology announcement as crypto watchers took it as a sign that it would help NEO to gain traction.  

The developers of both projects have worked together on NEO smart contract technology. Ontology is based in Shanghai. The token’s price has slipped 2% this week to trade at $4.7 despite the mainnet news.

Cardano and Google do the tango

Cardano (ADA), another decentralised application platform, in this case not actually with a working product, but with wide support because of its peer-reviewed approach and innovative technology, has also seen its value rise. 

The eighth-placed coin by market cap is led by Brit Charles Hoskinson of the IOHK Foundation which is based in Hong Kong.  Cardano has seen its price mushroom 22% in the past seven days. 

Hoskinson gave a presentation to Google employees at the tech giant’s London HQ, where he explained how the Ouroboros protocol the network will run on works. He pitched it as an interoperability play in which any number of tokens can be interchangeable. 

Hoskinson put it like this: "And because all the payment systems are now programmable, thanks to you guys and many others, the merchant gets paid whatever the hell the merchant wants to get paid, now. So I can walk over to Starbucks, and I can have my house tokenized, and I can sell it. There’s a market maker that lives in between that, and I sell one-millionth of my home and I can buy that cup of coffee, somebody bought that from me and the merchant gets paid in dollars or pounds."

The Cardano founder’s appearance at Google was enough to ignite rumours of a partnership in the works, with the price charging ahead as a result. 

Hoskinson is a co-founder of Ethereum and he touted Cardano’s advantages over that platform, not just in terms of its third-generation interoperability features, scalability and security but, crucially, in its footprint among developers. 

"So how many Java, C++ or Go developers are writing code on Ethereum? You can’t, Ethereum doesn't support any of these languages," he commented somewhat disparagingly. 

"Our goal is to release the next major version of Cardano some time this year, called Shelly."

Other alt coins showing their spurs were IOTA, the Internet-of-Things-focused blockchain, 17% higher, Stellar and EOS up 15% and Ethereum Classic, Steem and NEM more than 20% the better. Ethos, which released its "universal" wallet that it touts as secure storage for a wide array of tokens, was nearly 50% higher at one point, but is now 25% up on the week as the shine of the announcement wears off, with the token off 17% today.  

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