As with the law of gravity, what goes up must come down – and stakeholders of major cryptos are receiving quite a physics lesson. Following a mercurial run, the sector has simply run out of gas. It happens to everyone and everything.
Notably, the correction may be fueled in part by a disconnect between the whales (i.e. major stakeholders) and retail investors. The latest data shows that while $2.5 billion worth of the benchmark blockchain asset left exchange wallets recently, the whales have not been the ones accumulating. By logical deduction, that leaves the army of retail investors as the main buyers.
In the near term, this dynamic could represent a warning that cryptos could get choppy in the days ahead. Fundamentally, then, investors have a difficult choice to make: do they ride the waves assuming that the turbulence will be ephemeral? Or do they trim some of their exposure in the hopes of picking up virtual currencies at a cheaper value?
Admittedly, the latter approach is quite temping. For this week’s write-up, we’ll focus on key technical levels to watch.
Bitcoin (BTC-USD)
Naturally, the immediate concern regarding the trajectory of cryptos centers on Bitcoin (BTC-USD). Over the past 24 hours from early Tuesday morning, BTC lost more than 5% of market value. In the trailing seven days, the benchmark blockchain asset suffered a 10% decline.
Technically, one concern is that Bitcoin’s price action chartered a “mini” head-and-shoulders pattern, starting from early March. Right now, BTC is dangling just underneath its 20-day exponential moving average, which is around $64,818. However, the larger concern is that Bitcoin may also be in the middle of forming a larger head-and-shoulders pattern.
Pull up a technical chart, such as from StockCharts.com. You’ll notice that there’s a possible (first) shoulder pattern around mid-February. Then a head materializes around mid-March. It’s possible that we could see the second head materialize in April, giving us a downside target of $52,500.
Turning to Barchart’s Trader’s Cheat Sheet, there are multiple support lines down to $59,398.76. However, the issue is that BTC has already tumbled through most of these lines. Therefore, a tactical adjustment wouldn’t be the worst idea.
Ethereum (ETH-USD)
Wherever Bitcoin goes, Ethereum (ETH-USD) is likely to follow and that is the case right now. Over the past 24 hours, ETH suffered a loss of approximately 8%. In the past seven days, it’s down a staggering 17%. Critically, the bulls have lost control of the $4,000 level, which was a psychologically important milestone. Presently, the number two cryptocurrency by market capitalization trades at $3,339.
Technically, I’m more inclined to commit to a tactical adjustment for Ethereum. Mainly, that’s because of the pace of the negative acceleration. For one thing, ETH fell well below its 20-day exponential moving average. Further, it’s getting close to dropping to its 50-day moving average, currently sitting at $3,098.
Stated differently, Ethereum isn’t waiting to develop its mini head-and-shoulders pattern; it’s outright going for the big one, which materialized around the same time as Bitcoin’s bearish pattern (mid-February).
Looking at Barchart’s cheat sheet, the investment resource lists several support lines down to $2,995. However, as with Bitcoin, the issue is that ETH has fallen through most of these levels. With sentiment so poor in cryptos in the immediate frame, some trimming might not be a bad idea.
Tether (USDT-USD)
While Tether (USDT-USD) might “only” be a stablecoin, it can provide plenty of insights for broader sentiment in cryptos. Basically, Tether keeps the blockchain machinery working, effectively providing liquidity for the system. So, if more people value USDT over its peg to the dollar, that’s a positive sign for decentralized assets. If not, it could be a warning sign.
Over the past 24 hours, Tether popped its head slightly over parity. However, over the past seven days, the stablecoin has been negative against the greenback. That’s not necessarily a sign to panic in and of itself. However, the dynamic emphasizes that investors see more relative value holding fiat currencies than virtual currencies. Until this narrative decides to pivot, we could be seeing more volatility.
Now, the good news for those who follow the technicals is that Tether enjoys plenty of support going down to 0.997 per one dollar. Even better, USDT is currently closer to its next upside resistance level than to falling to the meat of its support zone.
So, I don’t expect a severe value drop in Tether. However, it’s a good idea to monitor USDT to gauge other cryptos.
Solana (SOL-USD)
Somewhat bucking the trend in cryptos right now is Solana (SOL-USD). One of the hottest altcoins or alternative crypto coins, SOL suffered a loss of more than 7% in the trailing 24 hours. So in that regard, it’s no different than other blockchain assets. However, in the past seven days, it gained 22%. As of this writing, Solana is the top-performing decentralized asset in the top 10 by market cap.
Will it stay that way? That of course is the $82 billion question, Solana’s current market value. Frankly, with other cryptos facing significantly volatility, it seems SOL is merely delaying the inevitable. Yes, it’s trading above its 20-day exponential moving average. A couple more bad Bitcoin sessions and a red wave could crash down the rest of the virtual currency complex.
Technically, too, if SOL does correct sharply from here, it risks printing a similar head-and-shoulders pattern like the major assets.
Turning to the Barchart cheat sheet, Solana has several support lines down to $147. However, at around $184, it only has two support lines before it gets to that point: $180.83 and $161.42. Early investors may want to consider trimming some exposure.
XRP (XRP-USD)
Easily one of the most frustrating ideas among cryptos, XRP (XRP-USD) earlier started to make steady progress as it attempted to regain credibility. It’s not quite back to square one. At the same time, XRP didn’t do itself much good. In the past 24 hours, the digital asset lost 4.5% of market value. Over the past week, it’s down 16%.
Technically, XRP couldn’t hold the line where the 20-day exponential moving average stood at 62 cents. Subsequently, with the crypto trading at 59 cents, it’s trading just above the convergence point of its 50 and 200 DMAs (around 57 cents). At minimum, XRP must hold support at 57 cents. Otherwise, circumstances could get very ugly.
I’ll be blunt. XRP appears to be charting a broadening wedge pattern since early February. If that’s the case, there is a possibility that XRP could fall to around 52 cents.
Interestingly, though, 52 cents is what Barchart identifies as a key support line. Before that point, there are plenty of support levels. What’s more, XRP enjoys the full breadth of support before getting down to the aforementioned downside target. So, you might be able to rest easier on this one.
Avalanche (AVAX-USD)
Another name that appears to be bucking the severely negative trend in cryptos is Avalanche (AVAX-USD). An altcoin that recaptured the imagination during the “Uptober” seasonality cycle, AVAX has been able to weather the storm better than most other decentralized assets. Yes, it’s down more than 5% in the trailing 24 hours. However, in the past seven days, it gained around 20%.
Whether Avalanche can continue bucking the trend is a difficult question to answer. Generally, the end result tends to be “no.” Like it or not, cryptos broadly correlate with Bitcoin’s price action. There could be an initially muted price action or even a delayed response. Eventually, though, BTC tends to lead the wolfpack.
Another warning comes from Avalanche’s point-and-figure (P&F) chart. Per StockCharts, the blockchain asset is printing a high pole warning. Basically, the implication is that the demand that previously caused the price to rise has given way to downside pressure.
Turning to Barchart, Avalanche has multiple support lines down to $38.07. Standing at $59.28, AVAX appears in decent shape. However, with the volatility in other cryptos, a trimming to reflect present realities might not be a bad idea.
Dogecoin (DOGE-USD)
As a speculative digital asset, Dogecoin (DOGE-USD) was always going to be a high-risk, high-reward endeavor. Although the meme coin reemerged as an enticing opportunity, it just as quickly demonstrated why only the most disciplined should consider trading DOGE. In the past 24 hours, the crypto suffered an 11% loss. Over the trailing week, it’s down 23%.
Technically, the negative acceleration has been fierce. Dogecoin fell sharply below its 20-day exponential moving average. At 13.2 cents, DOGE is rapidly moving toward its 50 DMA, which comes in at 11.4 cents. I don’t really see a discernible technical pattern. Instead, the meme coin appears to have suffered from the so-called weak hands securing their profits early.
I can’t say that I blame them. Again, Dogecoin – while being ranked as the number 10 crypto by market cap – represents a risky affair. Given the pace of the fallout, I would wait to see if the 50 DMA will hold. If not, the matter is inviting a trip below 9 cents.
From Barchart, there are plenty of support levels between 10.5 cents and 13.2 cents. Still, I would be very careful with Dogecoin because of its historical volatility.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT and XRP. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
