More Pain Ahead for Cryptocurrencies

Cryptocurrency traders have watched life-changing profits go up in smoke in 2018, with bitcoin's value vs. the U.S. dollar losing 54% since the last trading day of 2017 while the ethereum pair has dropped an astounding 73%. It's even worse when measuring from historic peaks to current positioning, translating into 67% and 86% losses, respectively. Of course, few folks in this fast-finger crowd will admit to buying the top or failing to exit, despite months of downside.

Bearish price patterns suggest that these volatile instruments are getting ready to break months of support and post even lower prices into year end. This lack of committed buying interest, despite oversold technicals and endless bottom calls, highlights the elusive nature of digital-based currencies and the willingness of powerful people who control traditional fiat currencies to protect those forms of commerce and exchange.

Bitcoin/U.S. dollar (BTCUSD on Coinbase) entered a strong uptrend in 2016, posting a 100%-plus annual return. The rally entered a more parabolic phase in March 2017 and went ballistic in September, surging from $2,975 into December's all-time high at $19,892. It fell more than 9,000 points in the next six sessions, entering the first phase of a highly volatile topping pattern that broke to the downside in January 2018.

The decline posted lower lows into the February low at $5,873 (red line), completing a death-defying 14,000-point Elliott five-wave pattern, and entered an intermediate recovery wave that stalled at the .382 Fibonacci retracement level above $12,000 a few weeks later. A March breakout attempt failed, giving way to renewed selling pressure that has carved a long series of lower highs while still holding support below $6,000.

Volatility has declined substantially since March, yielding smaller and smaller buying impulses, predicting that the trading floor will soon break and drop the instrument toward the next support level at $5,000. Conversely, it will now take a 13% rally through the 200-day exponential moving average (EMA) at $7,200 to incrementally ease massive technical damage. None of this bodes well for cryptocurrency perma-bulls, who still expect new highs in coming years. 

Ethereum/U.S. dollar (ETHUSD on Coinbase) topped out at $1,420 one month after bitcoin's peak, following a parabolic impulse that started near $300 in November 2017. It fell 47% in the next four sessions, rebounding at $757. A painful series of lower highs and lower lows reached the parabola's starting point in April 2018, giving up 100% of those spectacular gains. It then entered an intermediate recovery wave that also stalled at the .382 retracement level.

The currency pair broke the April 2018 low in August and stair-stepped into support at the July 2017 low near $200. It has been testing this important level for the past six weeks and looks ready to break down once again, perhaps in unison with a bitcoin decline toward $5,000. A 90% rally is now needed to lift ethereum back to the 200-day EMA, which seems an impossible task. Meanwhile, the next selling wave could be devastating for remaining holders, dumping the currency pair into the double digits.

The Bottom Line

Bitcoin, ethereum and other digital currencies look set to roll over and drop to new 2018 lows, despite months of aggressive selling pressure and deeply oversold technical readings.