On November 10, 2021, Bitcoin and Ethereum prices soared to nearly $69,000 and just over $4,865 per token, respectively. The leading cryptos closed the session below the previous day’s lows, putting in a pair of bearish key reversal trading patterns that plunged the asset class into the crypto winter. Bitcoin fell to a low below $17,620 in late June 2022, and Ethereum probed below the $1,000 level. The declines led the over 20,000 other tokens on a bearish path, leaving financial destruction in its wake.
The unprecedented rise from five cents in 2010 to the $69,000 per token level in 2021, with many volatile speedbumps along the way, makes the latest correction another chapter in price variance for the emerging asset class. However, as cryptos became more mainstream over the past years, increased market participation made the latest correction particularly painful.
The decline may have found a bottom
The crypto winter took Bitcoin and Ethereum to under one-third the prices at the highs in a little over seven months.
The chart shows Bitcoin’s decent from $68,906.48 on late 2021 to $17,614.34 on June 20, 2022, a 74.4% decline. Ethereum, the second-leading cryptocurrency, did even worse.
Ethereum fell from $4,865.426 on November 10 to $883.159 on June 20, 2022, plunging 81.8% over the period.
Casualties clear the path
The declines took the asset class’s market cap from over $3 trillion to below the $1 trillion level at the low. Meanwhile, it also left a trail of losses and bankruptcies in its wake. In July 2022, Voyager and Celsius 1, two leading cryptocurrency trading and lending platforms, filed for Chapter 11 protection. Crypto hedge fund 3AC failed, and Coinbase (COIN), the crypto trading platform that soared to a high of $429.54 in April 2021 when shares began trading on the NASDAQ, fell to a low of $40.83 in May 2022, an over 90% decline from the high. COIN was at the $66.30 per share level on August 2.
The crypto casualties were companies that overextended risk hoping for a recovery, and they could not survive the crypto winter. Companies like COIN were wounded, perhaps mortally, as prices became falling knives. Late comers to the asset class continue to lick their financial wounds in early August 2022. Still, the recent price action suggests the turmoil could clear a path to the upside for Bitcoin, Ethereum, and many of the over 20,000 tokens floating around in cyberspace over the coming weeks and months.
History suggests another head-spinning rally
Ugly and severe corrections are nothing new for the cryptocurrency asset class.
The one-year move from the December 2017 $19,862 high to the December 2018 $3,158.10 low took the top crypto 84% lower, a more substantial percentage loss than the move from the November 2021 high to the June 2022 low.
Ethereum fell from $1,419.975 in January 2018 to $82.408 in December 2018, a 94.2% implosion that was more significant on a percentage basis than the most recent decline. The late 2018 lows gave way to a series of new record peaks in leading cryptos.
If history repeats, another head-spinning rally could be on the horizon as Bitcoin and Ethereum have recovered from the June 2022 lows.
Levels to watch in Bitcoin and Ethereum
The pattern of lower highs and lower lows over the past eight months created a series of technical resistance hurdles for Bitcoin and Ethereum. The levels to watch on the upside in the leading crypto are:
- $32,329.54, the May 2022 high
- $42,946.95, the April 2022 peak
- $52,007.04, the December 2021 high
- $59,423.52 November 25 high that is the gateway to the November 10 all-time peak of $68,906.48
Critical technical support level stands at the June 20, $17,614.34 low.
Ethereum’s technical resistance levels stand at:
- $2,012.315, the May 2022 high
- $3,176.169 and $3,579.866, the April 2022 peaks
- $4,7870.13, the December 2021 high
- $4,865.426, the November 2021 record peak.
Ethereum’s technical support is at the $883.159, June 2022 low.
Only invest what you can afford to lose- Risk is a function of potential rewards
While history suggests that cryptocurrencies can make a stunning comeback, it is still a burgeoning asset class with many risks. Buyers should be prepared to lose all the capital invested as the potential for substantial rewards comes with significant risks.
Bitcoin and Ethereum may have turned the corner, but many of the other over 20,000 cryptocurrencies are likely to become worthless. Cryptocurrencies are an alternative investment that should only occupy a small percentage of overall portfolios because of the high risk level.
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