In the past few hours, there has been a massive decline in the price of bitcoin (BTC) and other cryptos. The entire market has stalled and based on market behavior it looks like this might be the start of a significant correction. In case you missed it, let’s review how we got here: From a technical perspective, we have not seen anything of the magnitude that led us to this point in our markets. From a fundamental perspective, we’ve seen signs of overstating assets.
In case it is not clear, I am not saying that the market is totally worthless by any means. The question is whether new lows are justified now or will they be seen again in the coming weeks/months. The answer to this will tell us what “fair value” is for each crypto asset and when we can expect another big move.
With 495 billion USD
In the market cap (BTC at $6100) there are a lot of assets that are already undervalued by some significant margin. However, there are also a lot of assets that are way overvalued and that need to correct in order to support the market.
IMPORTANT: I am not saying it is all bad for crypto. There will obviously be another big move higher but I think a significant correction is due and it needs to retrace at least 75% to 90% (of the last move) of the recent rally.
At this point in time, it seems like we’ve reached an inflection point where the market entered into a new phase and might act differently from here on out. This is why I think the last few hours (and days before) are worth analyzing in order to see what might be coming next.
Ripple price remains bullish
Prior to the recent sharp downturn, ripple (XRP) had been on a strong run. This is especially surprising since there has always been a very visible trend line that acted like a “resistance” level. If this was not enough: XRP’s growth was accelerating and it was pushing towards its all-time high while BTC was in a very slow downward motion.
Litecoin is Bearish but still Bullish
With a market cap of $8.8 billion, litecoin (LTC) is the most valuable “small-cap” crypto asset. The price has been somewhat sideways for the last few months and as you can see on the chart, it is getting ready to enter a new bull market.
Note: Generally speaking, most small-cap assets are undervalued so it might be a good idea to keep some of them in your portfolio even if they are not showing any signs of acceleration.
Ethereum takes a break for self-reflection
Ethereum (ETH) is the second biggest crypto asset with $48 billion in market capitalization. There are a lot of reasons to be bullish on Ethereum, especially when you compare it with the competition. However, if we zoom out a bit and look at the chart of what it is doing now, it is trading in a very narrow range for more than 30 days. This is not exactly bullish behavior and in this type of environment, we need to be looking for short opportunities.
The above image shows the recent long trend line mentioned earlier. A break of this line would be a very bullish signal (normally described as a “probable” buy signal). However, with all technical aspects in mind, we should not expect many new lows for ETH anytime soon.
Loss of trust: BTC, Ethereum and more
Bitcoin has been on fire for the last few years and there have been many reasons that people have hyped it up as an asset even though there were warning signs right from the beginning. The recent drop is a good example of this.
While I am not suggesting that people should short BTC, just like with any asset, you should have a long-term interest in it and its fundamentals. As many people have already pointed out: bad news often leads to further dips which can lead to even lower prices. This is “unfair” but that’s the nature of the markets right now.
