A rally in major cryptocurrencies that began at the end of the previous week continued last week, spreading to smaller cryptocurrencies.
As of Saturday evening, Bitcoin had gained 1.7 % over the previous seven days, ETH 2.66%, XRP 1.91%, LTC 4.91%, and XLM 12.71%, with 78 out of the top 100 cryptocurrencies advancing and 22 declining.
A strong advanced-decline ratio indicates that the rally is for real, fueled by new money flowing into the cryptocurrency markets, rather than rotating from one cryptocurrency to another.
Then there’s the news that China is ready to embrace blockchain technology, and develop its own digital currency.
That’s something markets expected to hear, as Facebook’s Libra has been falling apart.
Nicholas Pelecanos, Advisor to NEM Ventures, thinks that BTC is ready for a break out, as trades near the top of its range. “The tremendous 40% rally we witnessed at the end of last week certainly shows the market participants are still bullish,” he says.
But he thinks that China’s renewed interest in blockchain favors protocols like Ethereum and NEM rather than Bitcoin. “Personally, I believe the news that China will embrace blockchain is not as bullish for Bitcoin as the rally may have hinted to; I don’t believe giving Chinese citizens sovereignty of wealth is high on the current regime’s agenda,” he says. “The news is however bullish for protocols like Ethereum and NEM that can support the applications the Chinese government may be looking to embrace.”
Ryan Uhr, CEO and co-founder of Coinplug Inc., thinks that China will always keep a firm control of cryptocurrencies that allow citizens to hide assets. “Cryptocurrencies that are developed and managed independently of the Chinese government provide the means for citizens to hide assets,” he says. “This means that the government will most likely keep cryptocurrencies, including Bitcoin and Libra, under tight control in the domestic market.”
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Simply put, Bitcoin and other major cryptocurrencies won’t see any meaningful impact from China’s cryptocurrency embrace. And that will eventually deflate the hype behind the recent rally, and the return to the old “sideway” pattern.
But that may not be a bad thing. “A sideways BTC doesn’t mean opportunities will cease to present themselves,” he says.
One area where he sees such opportunities is short LTCUSD, as its hash rate has been falling. “I don’t see LTC making any meaningful pull back until the hash rate begins to climb again,” he says.
Meanwhile, Pelecanos is concerned about the volatility in BTC’s hash rate. “Speaking of hash rate, while everyone was distracted by the China embracing blockchain news, the Bitcoin hash rate slid over 30% from its high,” he says. “The hash rate has since rallied around 10% but further destabilization to the hash rate could cause BTC to head back down to the bottom of its range.”