Crypto Carnage Seems To Have Run Out Of Steam...New Bitcoin, Ethereum Highs Ahead?
Andy Hecht | Feb 14, 2022 06:03AM ET
This article was written exclusively for Investing.com
- Bitcoin and Ethereum followed a bearish technical trajectory
- Bearish trends end when selling evaporates
- Significant bounce last week
- Look for a move to the $51,100 level in Bitcoin, $3,530 in Ethereum...
- ...Above there, the cryptos could catapult to new highs
Market volatility is a powerful drug for many investors and traders. It often leads to speculation, the quest for gains irrespective of the risk of losses.
The act of formulating a speculative opinion or theory without thoroughly researching or investigating leads many to pile into a bull market. In my lifetime, prior to the advent of cryptocurrencies I had never seen any asset that started at five cents rise to $70,000 in eleven years. Yet a $1 investment in Bitcoin at five cents per token in 2010 was worth nearly $1.4 million in mid-November 2021 when the digital currency reached its all time high.
Even after the price halved in value at the January 2022 low, it was still worth nearly $850,000, an almost incalculable percentage gain.
The correction from the November highs caused Bitcoin, Ethereum and many of the other over 17,500 cryptos to go from shooting stars to falling knives. But after reaching lows last month, the cryptocurrency asset class has recovered. It could even be ready to rise to new and even higher highs.
If history repeats, the recent price action will be the start of a rally that takes cryptos to unthinkable levels as the speculative impulses grip market participants and take the burgeoning asset class to prices that set the stage for another round of price carnage.
The trend in the crypto-class over the past ten years has remained highly bullish. However, the head-spinning moves will continue to cause more than a bit of indigestion for those who sell too early, or even worse for those who buy too late.
h2 Bitcoin and Ethereum followed a bearish technical trajectory/h2Like a game of musical chairs, the bullish music came to a sudden stop for Bitcoin and Ethereum on Nov. 10, 2021, the day they reached their most recent all-time highs.
Source: Barchart
The chart shows that after reaching $68,906.48 per token intraday, Bitcoin reversed and closed the session below the previous day’s low.
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Source: Barchart
Ethereum followed the same path after reaching a record $4,865.426 high.
The powerful reversal pattern took Bitcoin to a low of $33,076.69 or 52% below the high. Ethereum dropped to $2,163.316 on Jan. 24, 55.5% below the Nov. 10 high. Bitcoin, Ethereum, and many other cryptocurrencies more than halved in value from the Nov. 10 high to the Jan. 24 low.
h2 Bearish trends end when selling evaporates/h2The explosive bullish cryptocurrency trend ended on Nov. 10 when selling overwhelmed buying, taking prices appreciably lower. Just as the bullish music stopped in mid-November, it appears that the bearish music came to a halt on Jan. 24 as selling evaporated and buyers stepped back in, becoming more aggressive.
Picking tops or bottoms in any market is a dangerous game. In cryptocurrencies, it can be deadly. Markets that exhibit high volatility tend to rise to illogical, irrational, and unreasonable prices, and they fall to prices that defy logic and rational analysis when bearish trends appear.
Many market participants attempt to buy lows or sell highs, which is more about ego than investing or trading for profits. Price trends reflect the market’s sentiment or the crowd’s wisdom. Picking a top or bottom to enter a risk position is an abject denial that the crowd is smarter than the individual, invariably leading to mistakes and losses.
Bullish trends end when sellers become more aggressive, and bearish trends turn bullish when buying overwhelms selling.
h2 Significant bounce last week/h2Over the past week, we may have seen cryptocurrencies turn higher after consolidating since the Jan. 24 low. It may be safer to dip a toe in the asset class now that the markets seem to have run out of downside steam.
Source: Barchart
The chart shows Bitcoin has shifted from making lower highs and lower lows to doing just the opposite since Jan. 24.
Source: Barchart
The technical action in Ethereum displays the same emerging pattern. After halving in value, the two leading cryptocurrencies may each have found bottoms, which could mean the buying frenzy in the volatile asset class is about to return.
h2 Look for a move to the $51,100 level in Bitcoin, $3530 in Ethereum.../h2A 50% retracement of the price carnage in Bitcoin would be $50,991.59 per token. In Ethereum, it would be at the $3,514.371 level.
On Feb. 14, at time of writing, Bitcoin was trading at $42,107, with Ethereum at just above $2,855. The leading cryptos have more work ahead to climb to the 50% retracement levels of the moves from the November high to the January low. Above the $51,000 and $3,515 level, we could see a flood of speculative buyers return to the cryptocurrency asset class.
h2 ...Above there, the cryptos could catapult to new highs/h2I have been trading and investing for over four decades and have never witnessed anything quite like the cryptocurrency frenzy that's taken hold of markets over recent years.
In the early days I wrote off the ascent as a speculative bubble. More recently, I've come to accept and respect the libertarian ideology that returns control of the money supply to individuals and takes it from governments.
Fiat currencies derive their values from the full faith and credit of the governments that issue the legal tender. Governments, central banks, and monetary authorities control purse strings. While they claim that their manipulation of money is for economic stability and to “protect the public,” maintaining power and control remains is at the heart of the motivation for the status quo instead of a new and emerging asset class that is a means of exchange.
The full faith and credit have faded as government debt has skyrocketed, inflation is rising, and polls indicate dissatisfaction among voters and the general population. Ideological devotees of cryptocurrencies reject government control; they see fiat currency and related interest rate markets as policy tools that serve a political agenda.
The underlying risk of the crypto asset class is the ideological divide. No one should expect governments to surrender control of the money supply to an asset class that puts it in the hands of individuals that buy and sell cryptos. However, the growth of the digital currency arena to a multi-trillion-dollar asset class is a sign that it is not disappearing anytime soon.
We will undoubtedly see more government regulation and could even see bans at some point. However, fintech reflects the evolution of the technological revolution, which has finally made its way to money and banking.
I would not be surprised to see Bitcoin, Ethereum, and other cryptocurrencies rise to new and higher all-time peaks in 2022, but the volatility will likely continue. The divide between the asset class and governments means that investors and traders must exercise caution and discipline, never investing more capital than they are willing to lose in any crypto.
Risks are always a function of the potential rewards. In the highly volatile cryptocurrency arena, the risk-reward reflects the most volatile asset class of our lifetime.
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