Checking in on Crypto
It's been a little over a year now since Bitcoin topped out in December of 2017. That year, the price of one Bitcoin surged from $1,000 to over $19,000. "Bitcoin Mania" was truly a speculative bubble in its purest form, and will likely be studied alongside Tulip Mania for years to come. It was a fantastic example of how sentiment and momentum can drive price to an irrational point, as we've discussed in past articles. Currently, Bitcoin is trading at $3,373 down over 80% from its peak.
It's fascinating to see how crypto speculators have adopted and applied technical analysis to the relatively new asset class. There are hardly any fundamentals to value, and they have plenty of liquidity so naturally, technical analysis was one of the only reasonable methods for analyzing and predicting price movements. The technical analysis community was quick to apply their knowledge and tools to cryptocurrencies as well. As prices began to pick up in Q4 2017, many well-respected technicians began commenting and charting these digital currencies. Today, they continue to monitor the space for any significant trend reversals.
Robert Sluymer is a technical strategist at Fundstrat Global Advisors. He was featured in an article on Bloomberg this week, where he warned that cryptocurrencies are in for more pain. He approaches the space in the same way he would approach analyzing the stock market, by taking a look at market breadth. Below is a chart Sluymer included that shows Fundstrat's proprietary advance/decline indicator that measures market breadth across 250 small-cap currencies.
Sluymer explains that the indicator is "at risk of breaking to new lows". He goes on to talk specifically about the largest cryptocurrency, Bitcoin. Sluymer thinks the $3,100 level is important to watch and says:
“A break below the fourth-quarter lows at $3,100 would imply a decline to $2,270, while a move above $4,200 is needed to signal Bitcoin is beginning to improve,”
This is an interesting change in tone from Fundstrat as their co-founder, Tom Lee was a vocal bull on crypto all throughout 2018. At one point, he even had a bold $125,000 price target on Bitcoin by 2022. Lee's thesis was largely driven by fundamentals so it's noteworthy to see the firm pivot to a more technical approach to analyzing the asset class.
J.C. Parets is another top-technician who has continued to keep an eye on cryptocurrencies. Recently, he tweeted about Bitcoin and emphasized that it's still in a downtrend. Below is one of the charts he shared in his tweet where he notes that:
"Bitcoin (not an uptrend) still stuck in the middle of this 2900-4660 range"
Both Sluymer and Parets agree that there are no reasons to be bullish on cryptocurrencies at this point. It's interesting to see how these technicians apply traditional technical analysis to such a new and unique asset class. Perhaps one day Bitcoin will form a bottom, and reverse its downtrend. We'll continue to watch Bitcoin and the cryptocurrency space and report back with any major developments.