The sales of bitcoin and ether have run out of steam. New highs ahead?
“Bearish” trajectory for Bitcoin and Ether
“Bearish” trends come to an end when sales dry
up A strong rebound last week
Bitcoin will target $51,100, Ether — $3,530
Next — rally to new highs
Market volatility attracts many investors and traders like a magnet.
It leads to speculative activity in the market — this pursuit of profit without regard to the risk of losses.
Driven by speculative opinions and theories that are not backed up by careful analysis, many investors rush to participate in the bull market. Before the advent of cryptocurrencies, I have never in my lifetime encountered an asset whose value would increase from five cents to $70,000 in just 11 years. Investing $1 in bitcoin in 2010, when it was worth 5 cents, you would have earned almost $1.4 million by mid-November 2021, when the digital currency reached an all-time high.
Even after falling by half to the minimum of January 2022, this investment would bring you almost $850 thousand. The percentage yield is even difficult to calculate.
When correcting from the November highs, bitcoin, ether and many others of the 17,500 cryptocurrencies experienced a crushing drop. However, after reaching the lows last month, a recovery followed. It is even possible that cryptocurrencies will grow to new, even higher highs.
If history repeats itself, the recent dynamics will be the beginning of a rally in which digital currencies can reach unthinkable heights if speculative impulses take hold of market participants. At the same time, the ground will be prepared for another ruthless correction.
The trend for this growing asset class in recent years has been unequivocally “bullish”. However, dizzying price fluctuations will continue to cause discomfort for those who either sell too early or, even worse, buy too late.
The “bearish” trajectory for bitcoin and ether
The “bullish” fanfare for bitcoin and ether suddenly stopped sounding on November 10, 2021, when both currencies reached record highs.
BTC/USD – daily timeframe BTC/USD – daily timeframe
The chart shows that after reaching the level of $68,906.48 in the course of trading, bitcoin then turned down and ended the session below the minimum of the previous day.
ETH/USD – daily timeframe/USD – daily timeframe
Ether followed the same trajectory after reaching a record high of $4865,426.
As part of this pattern of a powerful reversal, bitcoin fell to a low of $33,076.69, losing 52% compared to the maximum. Ether reached a low of $2,163.316 on January 24, which was 55.5% lower than the high on November 10. During the period from November 10 to January 24, bitcoin, ether and many other cryptocurrencies lost more than half of their value.
Bearish trends end when sales run out
The explosive “bullish” trend in cryptocurrencies ended on November 10, when sales outweighed purchases, which led to a strong drop in price. Then, on January 24, it seems that the “bearish” fanfare also subsided, when sales dried up, and buyers again declared themselves, moving to more active actions.
Choosing the moment to buy and sell an asset is always a dangerous game. In the cryptocurrency market, it can be deadly. Markets that demonstrate excessive volatility often grow to illogical, irrational and unreasonable levels, and when a bearish trend appears, their falls do not lend themselves to logical explanation and rational analysis.
Many market participants tend to buy at the lows and sell at the highs, more out of vanity than for reasons of investing and trading in order to earn profits. Price trends reflect the mood of market participants — in other words, the wisdom of the crowd. Attempts to calculate the top or bottom to open a position is a cowardly denial that the crowd is smarter than an individual investor, and they always lead to mistakes and losses.
Bullish trends are interrupted when sellers become more aggressive, and bearish trends are replaced by bullish ones when purchases begin to outperform sales.
Strong rebound last week
Last week, after consolidation following the achievement of lows on January 24, the cryptocurrency market seems to have seen an upward turn. Sales, apparently, have run out of steam, and investors are now, perhaps, safer to invest in the crypt.
BTC/USD – daily timeframe (chart for 3 months)BTC/USD – daily timeframe (chart for 3 months)
The graph above shows how after January 24, bitcoin began to show higher highs and higher lows instead of lower highs and lower lows.
ChartDescription automatically generatedChartDescription automatically generated
The same pattern is visible on the ether chart. After losing half of their value, both leading cryptocurrencies may have formed a bottom, and this may mean the resumption of consumer hype for this asset class.
Bitcoin will target $51,100, Ether — $3,530
The correction level for a 50% drop in bitcoin from the November high to the January low is $50,991.59. For ether, this level is at $3514,371.
At the auction on February 14, at the time of writing, bitcoin was trading at $42,107, and ether was trading at $2,855. Leading cryptocurrencies still have a lot of work to do to reach the above-mentioned correction levels, and an army of speculative buyers may return to the market above $51,000 and $3,515.
Next — rally to new highs
I have been trading and investing for more than 40 years and have never seen anything comparable to the hype around cryptocurrencies that has swept the markets in recent years.
In the beginning, I described the rise of this asset class as a speculative “bubble”. Subsequently, I began to understand and respect the libertarian ideology that transfers control of the money supply from the hands of governments to the hands of individuals.
The value of fiat currencies is based on the full trust and recognition of the issuing governments. Finance is controlled by governments, central banks and monetary authorities. And although they claim that they manipulate the money supply for the sake of economic stability and the protection of society, the main incentive that motivates them to maintain the status quo and not accept a new, emerging asset class as a means of exchange is the desire to retain power and control.
There is no need to talk about full confidence in governments, taking into account the greatly overgrown public debt, inflation and opinion polls indicating discontent among voters and society as a whole. Adherents of cryptocurrencies oppose government control. From their point of view, fiat currencies and related interest rate markets are used as tools to advance the political agenda.
In this regard, crypto assets are threatened with ideological collisions. It would be naive to expect governments to give up control over the money supply and give way to an asset class that transfers this control into the hands of individuals buying and selling crypts. On the other hand, the growth of digital assets to trillions of dollars by market capitalization is a sign that they will not disappear anywhere in the foreseeable future.
Governments will certainly introduce new legislative rules and regulations regarding cryptocurrencies, and possibly even bans. However, fintech reflects the development of a technological revolution that has finally reached the financial and banking spheres.
I wouldn’t be surprised if bitcoin, ether and other cryptocurrencies rise to new and higher record highs in 2022, but volatility is likely to persist. The conflict between this asset class and governments means that investors and traders should exercise caution and discipline and in no case invest more capital in the crypt than they are willing to lose.
Risk is always associated with a potential reward. And the ratio of risk and reward for cryptocurrencies reflects the maximum in our century