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Since the all-time highs reached by Bitcoin (BTC) and Ethereum (ETH) two to three months ago, I believe that most people would agree that the market has been bearish. Many in the crypto world feel this recent downturn is only temporary, and perhaps a necessary retracement for a more healthy and sustainable level of growth. Up until now, some people (including myself) could argue that despite this troubling recent downtrend, the long-term uptrend established from the beginning of 2017 is still intact. That might be about to change very soon, and there is a fork in the road from a technical analysis standpoint that will be decided in the next 2-4 weeks.
I like to keep my technical analysis simple so that just about everyone can understand it. I could use moving averages, RSI, Bollinger bands, and other indicators, but these often times confuse people and tend to be lagging anyway. To me, the best indicator of price is price; that is, the simple support and resistance of price. As a former Commodity Trading Advisor (CTA) that built algorithmic trading systems, I know that using this practice generally allows for a faster response time to a market reversal. I also know as a former CTA that I should advise you that the opinions coming from the following technical analysis are my own and should not be considered investment advice. Please do your own research or consult your investment professional before investing as there is a significant risk of loss in cryptocurrency investing. Only risk what you can afford to lose. I have no current positions in BTC or ETH. Now on to the analysis!
Technical Analysis Of BTC & ETH (2017-Present)
The two charts above for BTC and ETH each have 3 trend lines. Line A (in black) represents support for the long-term trend line established in early 2017. Line B (in blue) represents the support line for the parabolic uptrend in price that occurred late last year. As is pretty much always the case, parabolic price growth in a financial instrument, no matter how much hype around it, is ultimately not sustainable. This ended up also being the case for BTC and ETH, as the short term support level was broken (line B) and a resistance line for a new price downtrend was formed (line C in red).
Both the long-term uptrend’s support line (line A) and the resistance line from the recent downtrend in price (line C) are converging and technically a decision will have to be made: will support for the long-term uptrend in price since early 2017 be maintained or will a longer-term price downtrend emerge? In the case of BTC, these lines will be converging roughly April 2nd (2 weeks), and in the case of ETH it will be roughly April 12th (3.5 weeks). The path that is ultimately taken will impact the time needed for recovery to be able to again challenge the recent highs from 2-3 months ago for BTC and ETH.
In the charts above, the green arrow above line A represents the best case scenario, which is that the recent downtrend will end (line C) and resumption of the long-term uptrend (line A) will occur, and line A will not be breached by price for a significant length of time. The curved and dotted red arrow below line A represents if line A is breached by price for an extended period of time. The green arrow option is clearly better since a new short-term uptrend will begin, and ideally will be one that is sustainable. The dotted red arrow implies a technical continuation of the downtrend and poses many threats for bulls such as how long will the downtrend in price last and how low will it drop before it bottoms out? In all likelihood, if line A is breached for an extended period of time, the price will fall even further before bottoming out, stabilizing, and establishing a new uptrend. During the last major Bitcoin crash of 2013-2014, price ultimately fell 83.9% (daily chart), and a similar decrease could occur here for BTC and ETH if their long-term support lines are breached. For BTC this would imply a price of $3,129.43, and for ETH it would imply a price of $216.55.
What Happened During The Bitcoin Crash of 2013/2014
As you can see in the daily chart above, a similar convergence point in Bitcoin was approached in mid-November 2014, and ultimately the long-term support that was established by the uptrend beginning in July 2013 was breached. You can see that price seems to want to maintain the long-term support line (in black) at the convergence point, but eventually weakens, breaches the line, and subsequently bottoms out and stagnates for 10 months. From that point in August 2015 onward, there is a price uptrend in the chart with price eventually surpassing the former November 2013 highs 38.5 months later in February 2017.
If the long-term support line established in early 2017 is breached, will it take over three years to recover from the December 2017 (BTC) / Jan 2018 (ETH) highs like it did during the recovery after the late 2013 spike in the price of Bitcoin? I think that is highly unlikely for a few reasons. First of all, the market is significantly more mature and has far more participants and general interest in it than it did in 2013-2016. I remember following the financial markets as an aspiring options day trader during that time, and the news of the huge rise in Bitcoin late in 2013 and its subsequent crash was generally considered nothing much more than a piece of novelty financial news (I want to kick myself for not taking Bitcoin seriously at the time, but anyway). Comparatively speaking, many more people are following the price of BTC and ETH today, and the financial media are taking cryptocurrencies far more seriously and dedicating more time to the asset class. Secondly and most importantly, the time needed to reach the convergence point from its recent highs this time around will be far less (3 months) than the time needed to reach the convergence point from its recent highs in 2014 (12 months). This is indicative of a healthier market with more participants and should imply a much faster recovery this time around should we ultimately breach long-term support of the uptrend established in early 2017.
The Chosen Path Will Have A Big Impact On Recovery Time
Even though recovery will be faster this time around should we ultimately breach long-term support compared to 2013-2016, the time needed to recover and once again challenge the highs from 2-3 months ago will be greater than if we do not breach the long-term support line for an extended period of time. The reason for this is because this long-term support line will now become resistance and will present a technical barrier and challenge for the price to surpass. In the last graph that I shared above, one can see evidence of historical resistance in BTC’s rebound from October 2015 to November 2016, and then the long-term uptrend is breached and serves as technical support thereafter (as evidenced in the price retracement that occurred in January 2017). Breaching the long-term support line that was established in early 2017 would open up further price uncertainty such as how low we will go, how long will it take to find a bottom, how long will we move sideways after that, and how long will it take for new price uptrend to emerge after that? By maintaining the long-term support line established in early 2017, a new short-term uptrend would be established, technical uncertainty would go away in the short-term, and all would be well in Cryptoland again.
On a fundamental level, I am bullish on cryptocurrencies as an asset class and blockchain technology over the long term. However, on a shorter-term technical basis, we could be in some real trouble soon as we face this technical fork in the road. I believe that support from the long-term trend line established in early 2017 will be maintained and that the line will not be breached. However, I am only about 60-65% confident though, so consider it a “lean” at best. If we maintain long-term support, then I believe that we will challenge recent highs again in August and that a price target for the year of $40,000 for BTC and $3,000 for ETH would be reasonable. If this were the case, perhaps highs for the year of $50,000 and $5,000 could be reached for BTC and ETH, respectively.
Alternatively, if the long-term support line from early 2017 were breached by price for an extended period of time, it would probably take until November of this year at best to challenge the recent highs from 2-3 months ago. Since this is the case, I am giving a year-end price target of $22,000 for BTC and $1,500 for ETH if we do end up breaching the long-term support line for an extended period of time. If this were the case, perhaps highs for the year of $25,000 and $2,000 (mid-December?) could be reached for BTC and ETH, respectively.
If you are still HODLing at this point, hopefully you will have the intestinal fortitude to continue on as potential price floors of $3,129 for BTC and $216 for ETH aren’t too far away at this time, especially considering where we were just 2-3 months ago. Hopefully though, we will maintain long-term technical support, which would imply that the market bottom is even closer to our current levels.
Nick Kitcharoen is Founder and CEO of BTD Capital, which will be releasing a long-term cryptocurrency fund with a fundamental focus in the near future. Nick has a background in corporate finance and trading in financial markets and was most recently Founder and CEO of Acumen Algorithms LLC, a formerly registered Commodity Trading Advisor, where his sole focus was the development of trading algorithms based entirely on technical analysis. Because of the huge opportunity that cryptocurrency and blockchain represents, Nick is moving on from Acumen Algorithms to focus entirely on BTD Capital. The all-star team at BTD Capital is excited about introducing themselves and sharing more details about the project with you all very soon.