Synchronized Growth Engulfs the Entire Crypto Market

In what reminds us of the last few weeks of 2017, the cryptocurrency market seems to be back to synchronized growth, considering most of the tokens look poised to end the week in positive territory. The massive speculation on financial assets is pushing valuations further into the extreme, making most people question how far can it go.

Bitcoin close to all-time highs

After several weeks of consolidation, Bitcoin rotated higher and only found some short-term selling interest around $40k. After Elon Musk’s Twitter update, the market’s attention shifted to other positive factors, including prospects for new fiscal stimulus in the United States.

At the same time, from a technical point of view, the Bitcoin consolidation structure raises prospects for a continuation higher, since it occurred after a very impulsive bullish move. Sellers were unable to break below $30k and now it is buyers’ turn to test the major resistance area around the January 8^th all-time high. Although in percentage points, BTC lags behind other altcoins, the trend is intact and it shouldn’t be a surprise if it extends further on the upside next week.

Large-cap altcoins pushing higher

Ether (ETH) reached $1.7k for the first time in history, continuing to outperform Bitcoin. The price did not embark on a corrective structure, but continued to edge higher, supported by both favorable fundamentals and flow-driven interest. At the same time, we can see that DeFi tokens are posting massive gains for the past several weeks and since most of them are based on the Ethereum blockchain, it is obvious to see ETH performing so well.

Cardano (ADA) is up by over 90% over the past 7 days, Binance Coin trends higher by 57%, and Stellar by 25%. The frenzy in Dogecoin continues, as the token is up 100% weekly, in a move that’s better triggered by Elon Musk again.

Can the exuberance last?

The bull run had started in the second half of March 2020 and it continues to unfold. Ultimately, a topping formation will occur and a sharper retracement will start to develop. In the meantime, though, it becomes increasingly difficult to chase the market at these elevated levels, since the upside is smaller and the downside potential larger.

From a risk management perspective, long-term buying is ineffective at current valuations, which will gradually lead to a contraction in bullish interest. The exuberance can last until technicals start to break and the order flow switches towards the sell-side. Such development can happen in a matter of days, given the elevated volatility.