Cryptocurrencies are clearly in a confirmed bear market now – the good news is this potentially affords us the possibility of getting in position at better price points ahead of the next market cycle.
Meanwhile the macro picture (i.e. other world markets outside of crypto) is starting to look somewhat shaky, which may have a significant effect on cryptocurrencies. I’m including a couple of charts towards the bottom explaining some of those forces, with some thoughts on how they might affect crypto prices going forward.
BTC has now very clearly rejected the 200 day moving average (red here) after retesting it from below. It’s also unambiguously printed a ‘death cross’ (50 day moving average crossing through 200 day) on the USD charts now, catching up with Japan. This confirms our bearish prognosis and gives a downside target of $3500-$4000.
BTC is in a rough downward channel on the USD chart (less so on the BTCJPY charts) which has clarified a little with the little bottom it’s put in over the last few days.
The bounce the last few days is I’m afraid probably just a way-point – the up moves are on low volume, sellers remain more enthusiastic.
We’re at decent support here, both from the early February lows and the 50 week moving average whose current price I’ve added to this chart as a blue horizontal line. The daily chart is oversold on the RSI, but given the volume picture I think it’s unlikely this will be the bottom, and I doubt this support will hold.
Lower support levels are marked on the chart in grey, a drop through the $6600 recent bounce level will see a likely swift move down to next support which is at $6000.
It’s important to keep perspective and see the current correction for what it is – a correction from a parabolic blow-off – so while it lasts I am going to keep posting this chart as a reminder that BTC remains in an almighty bull market on a longer timeframe.
The upper line of this channel is at $40k in January 2020 (thanks to the magic of exponential uptrends).
I’ve zoomed out to a weekly view on Ethereum. A daily chart would show it’s clearly under its 200 day moving average and oversold on the RSI, but it’s notable that ETH is now well under its 50 week moving average (unlike BTC) – and on decent volume. With weekly RSI down at 41 this is a bear market for now.
We’re just above strong support at $350, but given that BTC is calling the shots and looks like it could easily half from where it’s at, I wouldn’t like to predict it’ll hold.
XRPUSD is now under its 200 day moving average, and despite being oversold is looking weak. Indeed it looks to have just backtested prior support (green, just above) and rejected it. The speed of Ripple’s ascent back in December means there’s almost no support during the vertical move up, so if the current rejection is confirmed over the next day or two we’re likely looking at a fairly swift fall down to strong support at 0.3. The only thing in Bulls’ favour right now is that sell volumes remain modest.
A similar picture with LTCUSD. Despite outperforming everything else lately it’s finally capitulated under its 200 day moving average. The support situation is a lot stronger than Ripple however, with decent support at $109 and $103. This isn’t a bullish chart, but remains the strongest of the bunch during this bear market.
The macro picture
The US stock markets are testing their 200 day moving average (dma). This would be less worrisome for equity investors if it wasn’t for the fact that the Shanghai composite has already broken its 200 dma, with a very nasty gap down. As a reminder, such gaps tend to be the strongest form of resistance, so the severity of this move potentially puts a ceiling on the rally over in China.
Zooming out to a weekly chart, China is testing its 200 week moving average, a giant bull/bear line – and looks like it may be rejecting the same. It also becomes apparent that the recent gap-downs correspond to a gap dating back to January 2016 – in other words the entire 2 year bull run starts to look somewhat like a failed attempt to conquer psychological resistance from a gap formed at the end of the last blow-off.
Meanwhile the ratio of the S&P prices to commodity prices is at generational lows, implying we may be nearing the end of the current market cycle.
Yields are also rising on US government bonds, showing the risk profile of the US dollar is potentially starting to be questioned by the markets, as the US passes $21 trillion in debt.
(Chart credit to: https://twitter.com/charliebilello)
Why does all this matter to Cryptocurrencies?
These moves on world equity markets may mark the end of the longest bull run without a 5% pullback on the MSCI world index since records started.
Given the extremely loose global monetary policy we’ve seen since 2008, it’s arguable that this phenomenon, along with the historical highs in house prices (relative to earnings) in several countries are examples of asset classes exhibiting bubble behaviour.
If these markets begin to correct and investors start to rotate out of these assets, choices for where to park money may start to get a little tricky, especially when the usual safe-haven aspect of the US dollar is under threat and the real return on cash is negative when accounting for inflation.
Meanwhile cryptocurrencies are one of the few choices of asset classes which are almost entirely uncorrelated from equities – or indeed any other asset class, as shown below:
365 day correlations (for reference full positive correlation would be 1.0):
- BTC:GLD 0.02
- BTC:SPX 0.08
- BTC:TNX -0.03
What does this all mean?
Cryptocurrencies may be in a bear market right now, but I wouldn’t be shocked if we were to enter a monster rally later this year as institutions start to look for hedges against asset deflation elsewhere.
Ironically despite all talk to the contrary, after their recent selloff It’s just possible cryptocurrencies may be one of the few assets not in a bubble right now.
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BCB Group has no position or opinion on the price of Bitcoin or any other cryptocurrency and this article should not be construed as analysis of or advice regarding the current or future market price of Bitcoin or any other cryptocurrency. No analysis of the price movements of BTC or any other cryptocurrency or any other asset provided by BCB Group should be construed as an invitation or inducement to buy, sell or otherwise to trade BTC or any other cryptocurrency.
Jon is MD of British music production company Poseidon. He began studying technical analysis in 2000 for use in managing his own investments and due to its overlap with behavioural economics – much used in Poseidon’s international marketing work. This has seen the company achieve three iTunes US number one albums in as many years among other notable successes.
A Bitcoin investor since 2013, Jon and has been providing Technical Analysis (TA) commentary for a private community of Cryptocurrency investors since mid 2017.