The carnage that has ravaged the cryptocurrency market over the past few weeks may be near an end, according to Thomas Lee, head of research at Fundstrat Global Advisors.
However, that relatively upbeat proclamation comes with a proviso: The coming weeks and months may not yield an outright bull market either, as much of the market enters a phase of “purgatory.”
“First purgatory, then a bull market. While the bulk of the decline is behind us, a bull market for altcoins, however, is not necessarily under way. In prior cycles, altcoins go through purgatory…,” Lee and his team wrote in a Tuesday research note (see chart below).
Lee believes that the so-called limbo phase, or purgatory, marked by listless, indecisive action, plays out for about 150 to 175 days before transforming into a more definitive uptrend.
The Fundstrat analyst says that so-called altcoins, or alternatives to bitcoin BTCUSD, +0.03% are serving as the most severe headwind to the overall cyber-currency market due to heightened regulatory oversight—mostly from the Securities and Exchange Commission—tied to initial coin offerings (a novel, and risky, way of fundraising using virtual currencies).
The reason for this longer duration is the current dark clouds overhanging crypto are really alt-coin specific. The SEC has not provided full clarity on whether all ICO alt-coins are security tokens (requiring registration). Moreover, the dozen or so investigations by the SEC on ICOs obviously creates headline risk. Hence, our strategy of sticking with large-cap tokens is likely to last throughout the summer.
Based on one of the researchers’ contrarian indicators, the share of the universe of thousands of coins that have risen more than 200% is just at about 3%, implying that the market now may have exhausted its downdraft and be primed to bounce.