Bitcoin has fallen around 10% to roughly $32,000 on Tuesday, and other cryptocurrencies have fallen with it. The price has fallen 50% from its all-time high in April.
According to Rich Ross of Evercore ISI, if bitcoin does not find support at $29,000, it could fall to $20,000 before rebounding. He expects ether to fall to $1,850 – $1,750 if it does not rise above $3,000 soon.
‘Unfavorable short-term chart’
Cornerstone Macro’s Carter Worth believes the time has come to sell. He, too, believes the price of bitcoin will fall to as low as $20,000, based on the current head and shoulders trading pattern, in which the price rises to a high and then falls to the price that was the base of the previous up-move.
Bitcoin is currently at a critical level of support and could fall by as much as 55% from its previous high of around $58,800, he added. According to Worth, there have been 11 price drops of 30% or more in bitcoin since 2011, with an average of about 55%.
The cryptocurrency is up only 14 percent since the start of the year, but it is 229 percent higher than it was at this time last year.
“Crypto is a good long-term story with a bad short-term chart,” according to Ross. “As a student of price action alone, bitcoin is vulnerable in the short term, but investors should not interpret these short-term swings as validating or eroding cryptocurrencies’ long-term prospects.”
According to David Grider, Fundstrat’s lead digital asset strategist, there is some selling due to negative press about the Colonial Pipeline hackers as well as governments around the world debating how to regulate cryptocurrencies, but he believes these are ultimately positive catalysts for cryptocurrencies. Because bitcoin uses a public ledger, anyone can see the exact address to which the bitcoin ransom was sent, which is likely a failure on the part of the hackers and a blessing in disguise for law enforcement.
Nonetheless, Ross stated that the “rightful return of ransomed bitcoins is merely a convenient excuse for a sell-off against the backdrop of an already weakened chart that broke below its 200-day moving average weeks ago and has shown no urgency to reclaim it.”
Grider also stated that some cryptocurrency investors are concerned that this is a “mini bear market” similar to the one that followed the December 2017 highs. He described it as a mid-market reset similar to the one that occurred in mid-2017, but this one is deeper and sharper due to some leverage factors. Leverage had been building up over time but began to unwind in mid-April, with a second wave of liquidations following in late May.
“Because the crypto futures market was not as large during the previous bull market cycle as it is today, the move this cycle has been amplified,” he said. “Investors who were around for the previous cycle are relating this drawdown to the start of the December 2017 bear market because of the size of the sell-off, but without taking into account how the market structure has changed or how the macro impacts the overall crypto market.”