Cryptocurrencies began the weekend on a positive note, as investors scooped up coins at a discount following another down week in the market.
Bitcoin Leads Weekend Rally
Bitcoin rebounded sharply on Saturday, avoiding a bear-market reversal to trade back above $7,000. At the time of writing, BTC/USD was up 6.8% at $7,049 for a total market cap of $119.3 billion. The world’s first virtual currency dipped below $6,600 this week, threatening the yearly low.
The Relative Strength Index (RSI) signals extreme overbought conditions for bitcoin based on the five-day chart. If the indicator is taken seriously, bitcoin could be due for a reversal as the weekend rally concludes. Some traders are anticipating a bigger drop as speculators continue to lose interest in the market.
Altcoins also rose $8 billion on Saturday, bringing their total market to $143.5 billion. Ethereum recovered nearly 6% to trade at $389, Ripple’s XRP added more than 5% to $0.4956 and bitcoin cash jumped 7.4% to $651 (all figures according to CoinMarketCap).
Lesser known altcoins Verge and Ontology were the biggest gainers in the top-100, with each coin adding at least 20%.
The following chart highlights illustrates the altcoin market’s growth over the last 24 hours.
Cue the Post-Tax Day Recovery?
Tax season may be partly responsible for the crypto market’s uncontrolled decline over the past four weeks, according to Thomas Lee, who heads the research department at Fundstrat Global Advisors. In Lee’s estimation, many U.S. traders are liquidating their digital assets to pay off hefty capital gains taxes ahead of the tax-filing deadline, which falls on Apr. 17.
Lee estimates that there were roughly $92 billion in taxable gains from cryptocurrencies in the U.S. last year. That translates into a total tax liability of $25 billion, or 20% of capital gains tax payments for the year.
Cryptocurrencies added a whopping $590 billion in 2017, which was 60 times higher than the $11 billion gain in 2016.
If tax-day anxiety is driving the liquidation of crypto assets, it’s reasonable to expect that selling pressure will begin to fade in the second half of the month.
“We believe selling pressures have been amplified by capital gains tax-related selling this year,” Lee wrote recently. “If this is correct, we should see improved dynamics after April 15. We still like bitcoin and large-caps and while we believe the bear market for alt coins is largely over, we do not see upside for alts until mid-August.”
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.