Cryptocurrencies Melt In Early 2022

Cryptocurrencies have been the place to be over the past years, as they delivered incredible returns. In early 2022, the bloom has come off the bullish rose as prices have plunged since the November 10 highs. Bitcoin and Ethereum, the leaders, are lower in 2022, a position that is unusual for the cryptos. However, the selling over the past two months could present a buying opportunity for brave investors who have yet to dip a toe in the burgeoning asset class. 

Cryptocurrencies reflect the evolution of the fintech revolution. They embrace a libertarian ideology that rejects government’s control of the money supply and returns it to individuals. Cryptocurrency values are a function of bids and offers in the marketplace. Governments cannot expand the supply of tokens and do not intervene in the cryptos to alter values suiting monetary and fiscal policy agendas. 

While crypto values have melted in early 2022, the selling offers a chance for new participants to buy tokens in a market that made great strides towards becoming mainstream investment vehicles in 2021. 

Cryptos posted gains in 2021

In 2021, the leading stock market indices posted double-digit percentage gains. The S&P 500 rose 26.89%, the NASDAQ was up 21.39%, and the DJIA gained 18.73%. A composite of the most liquid commodities that trade on US and UK futures and forward exchanges gained 26.79%. 

The chart highlights the 57.81% gain in Bitcoin. 

Ethereum did even better as it posted a 391.75% gain last year. 

November 10 was a significant day for Bitcoin, Ethereum, and the asset class

The most recent highs in the leading cryptocurrencies came on November 10, 2021. On that day, Bitcoin and Ethereum tokens reached record peaks ad turned lower. 

The chart shows that Bitcoin rose to $68,906.48 on November 10. While the leading crypto made a new high, the price closed below the November 9 low. 

Ethereum put in the same bearish key reversal trading pattern on the daily chart. Both cryptos followed through on the downside, making lower highs and lower lows into early 2022. 

The shine comes off the asset class in early 2022

Bitcoin closed 2021 at $45,982.44 on December 31, 2021, and Ethereum was at the $3,650.30 per token level. 

On January 16, Bitcoin was trading at $43,456.45, 5.5% lower in 2022. Ethereum at $3,378.412 was 7.45% lower so far this year. Meanwhile, the top cryptos remain far higher than at the end of 2020. Crypto traders and investors have become accustomed to high price variance in the asset class. The corrections from the highs are a continuation of the price action that followed the November 10 bearish key reversal patterns on the daily charts. 

Cryptos should find bottoms at higher lows

If history is a guide, Bitcoin and Ethereum should find bottoms at higher lows over the coming weeks. Technical support for Bitcoin stands at the recent $39,713.52 low. If the correction continues, the critical downside level stands at the 2021, $28,860.59 low. 

Ethereum’s technical support is at the recent $2,937.003 low and the September 2021 $2,657.013 bottom. The growing interest in the asset class as an inflation hedge and alternative asset class for portfolios will cause market participants to buy the cryptos during the current correction. I would be surprised if prices fell below the 2021 support levels. However, I would not be shocked as the asset class’s history of volatility is almost unprecedented. 

Cryptos are becoming more mainstream assets, likely leading to price recoveries and a challenge of the November 10 highs in 2022. Meanwhile, the most significant challenge will likely come from regulators and governments. Cryptocurrencies remain a clear and present threat to fiat currencies as controlling and manipulating the money supply is critical for political agendas. Ray Dalio, the founder of one of the world’s leading hedge funds, said that governments have the power to “kill” the asset class.

Only invest what you can afford to lose, but buying on weakness has been the optimal approach to the crypto asset class

Risk is always a function of potential rewards. While cryptocurrencies have offered unprecedented rewards to those with the foresight to buy Bitcoin and Ethereum over the past years, the past performance is no guarantee of the future price action. 

I believe cryptos embody the evolution of the fintech revolution and that we will see a continuation of higher lows and higher highs in the leading cryptocurrency values. However, like a game of musical chairs, the music could suddenly stop if governments decide to ban trading and investing in the burgeoning asset class. When investing any capital in the crypto asset class, realize that it is at the risk of a 100% loss. 

Buying cryptos over the past years on any price weakness delivered incredible returns. Buying during rallies has been a challenge. If you were considering buying Bitcoin or Ethereum leading up to November 10 and balked, the trading patterns over the past years suggest that now is a far better time for purchasing as the prices have declined to more attractive levels.