Every asset class, in its movements, sooner or later hits a top or a bottom. Those are the best points for entering a new trade. Let’s examine the background and current situation to see whether we can make such a judgment at this juncture.
The news surrounding cryptocurrencies right now looks to be the worst. Coins are fading, exchanges are going bust, high-flying icons of the crypto world are hitting bankruptcies, etc. The news probably couldn’t get any worse. No surprise therefore to find most crypto charts are hitting the skids and prices are at multi-month lows. The air is thick with scams and Ponzi schemes leading to excessive volatility. There is high uncertainty about which market makers or crypto firms are still solvent—and will remain so—and it is definitely translating into a lack of demand for cryptos and that is reflected in prices hitting the skids.
This volatility is also compounded by continued lack of clarity—or indeed, conflicts—with regard to regulations across different countries in the world. Without a working framework for crypto sector regulation, different countries and states have a plethora of conflicting policies on how cryptocurrencies are classified as assets and precisely what constitutes a legal payment system. This weighs on growth and innovation within the sector, and many analysts believe that the mainstreaming of cryptocurrencies cannot happen until a more universally agreed upon and understood set of laws is enacted.
Scams and Ponzi schemes continue to prevail and make headlines every week. FTX and Almada are the more recent ones and earlier, the implosion of Three Arrows Capital and fund crunch at Genesis Trading, owing to exposure to FTX, has been impacting the largest of them all—Bitcoin. If DCG, the parent of Genesis Trading, were to slide into trouble, there could be more woes for Bitcoin.
Having looked at the background of cryptos currently, let’s turn to the technical side for some clues. Typically, charts will show divergences at market extremes and the so-far 77% decline in Bitcoin values can certainly be thought of as a market extreme.
Patterns on charts tend to appear at market sentiment extremes. The high in BTC at 68,000 was a sentiment extreme and currently, the lows near 16,000 are similarly so.
On Chart 1, I have shown a external Fibonacci ratio relationship of 61.8% (golden ratio) level for the rise as well as for the fall. This is the first indication that the current prices may be near a completion of the down move. Next, continuing with Fibonacci—but not shown on this chart—is that the current levels are at 78.6% internal retracement level, once again indicating a looming support.