From the desk of Louis Sykes @haumicharts and Steve Strazza @sstrazza
The Crypto space just experienced its worst day since the height of the Covid crash.
Bitcoin was down over 30% on an intraday basis, while Ethereum was almost cut in half.
We see this recent action aligning Crypto with what’s taking place throughout the market. Bulls have had a more challenging time in recent months, and risk assets are coming under increasing pressure.
Speaking to this topic, here’s what we outlined in a note earlier this week:
One more chart that I think is interesting is the Bitcoin / Gold ratio hitting it’s upside objective and reversing hard.
How many people are telling you to sell Bitcoin to buy Gold?
I don’t hear any at all….
Of course, we had no idea a 30% crash was on the horizon… The conditions simply warranted owning defensive assets like Gold over Bitcoin. And this is something we’ve been seeing across asset classes all over the globe.
Long story short, the writing was on the wall – and after such a great run, it’s only normal to see some corrective action.
Here’s a quick comparison of the latest bout of volatility with past corrections:
One thing I’ve learned over the years is that different environments call for different tools… OR, a different interpretation of the same tools – as is the case here.
Notice the difference in how price reacts to these extreme readings when Bitcoin is in an uptrend as opposed to when the trend is sideways, or lower – as it was from 2018 through last year.
Bottom line, depending on the underlying trend, these swift selloffs have either represented excellent buying opportunities (in uptrends), OR equally outstanding places to take profits and/or cut losses (in downtrends).
In looking at the price chart right now, while the trend has definitely cooled off with BTC currently in “bear market territory” (we hate this phrase…), it’s still making a series of higher highs and higher lows.
We call this an uptrend.
Here’s the play:
If Bitcoin is below 30,000, we want to be short.
But if this move was just a false start, then we want to be anticipating a valid breakout above our current risk level in the near future.
We think that’s the higher probability outcome, as opposed to this drawdown triggering another repeat performance of 2018.
Let’s take a look at Ethereum $ETH now.
In fact, Ethereum just experienced it’s second-worst day in its history (excluding its ICO volatility), just behind the Covid crash…
Just look at that nasty failed breakout.
But as long as that 2,300 level holds, this drop is likely not the end of the world. Granted, buyers have a lot of work cut out for them. There’s going to be no shortage of overhead supply moving forward.
In relative terms, Bitcoin fared much better than Ethereum, as Bitcoin’s market-cap dominance jumped from 40% to 45% yesterday.
Thankfully, it takes more than a day to make a trend. Until we begin seeing further deterioration, the trend is still unequivocally up. Let’s keep this in perspective – the ETH/BTC ratio more than doubled in three months, so it needed to consolidate at some point.
Digestion may not be pretty, but it’s necessary and healthy.
Overall, it appears Altcoins didn’t suffer as much damage. But looks can be deceiving — just look at that monster -30% candle on the FTX Altcoin Index. Since these smaller coins carry elevated risk compared to the blue-chips Bitcoin or Ethereum, it’s no surprise that they took more punishment.
At the bottom of yesterday’s crash, Altcoins were only trading at late-March levels, so there is risk of additional downside. If Altcoins are above 3,800, we need to err on higher prices. Alternatively, if buyers cannot hold this level, we cannot responsibly own Altcoins, under any circumstances.
Let’s walk through some of the individual Altcoins now.
Binance Coin $BNB needs to defend the 350 level. If buyers can’t do that, look out below.
As long as BNB is above 350, the risk is defined in our favor for a tactical long, with a target back at 560.
Cardano $ADA is back to those 2018 highs we discussed a few weeks back.
If ADA can defend this 1.50 level, there’s nothing wrong with sticking with the long side.
FTX Token $FTT is in a similar spot. It’s stuck between overhead supply and support near 30 bucks.
If FTT can maintain 30, there’s nothing wrong with being long here.
Bulls need 200 to hold for Monero $XMR. If not, the wheels are likely falling off for the entire Crypto space.
As long as we’re above that level, we can own XMR. Below it, and all bets are off.
Litecoin $LTC tells the same story. Prices reached their 2018 peak, sellers offloaded their bags, and the rest is history. As long as LTC is above 140, it likely isn’t the end of the line for Crypto just yet.
Last but not least, Polkadot looks like it’s going from one extreme to the other. After failing to break out, it appears DOT is failing to break down.
We want to be buyers of DOT if and only it’s above 26.50, with a target up near those former highs of 41.
To wrap things up, this recent action is consistent with this choppy and messy “second-year” market. But of course, this only looks a heck of a lot uglier because this has taken place through price, not time like what we’re seeing elsewhere right now.
This raises a couple important questions…
Are Crypto investors in for more pain ahead?
Are these Cryptocurrencies about to get choppier in the near term, like the stock market?
That’s certainly where the evidence is leaning.
But suppose we’re only looking at the data right in front of us. In that case, there’s nothing wrong with taking some shots at tactical longs in these otherwise leading assets where the risk is very well defined in our favor until we can ascertain a longer-term directional bias.
Thanks for reading and please let us know if you have any questions!