Cryptocurrencies are crashing this weekend…Depending on which side you are on, this could be very painful or a huge opportunity. The volatility in the financial markets is driving cryptocurrencies down with them. As we have suggested in the past several articles, there is an ominous potential liquidity event in the making (explained below). This liquidity event is causing a lot of damage to the stock and bull markets, and it looking more grim as time goes on. Are you worried? Time to HODL or time to dump? Below we will lay out the situation and follow up with a prediction on Ethereum, in particular. So let’s answer the question: Should I Buy The Dip On Ethereum?
The selloff in crypto is accelerating. To be accurate, the selling really began about a week or so ago in the crypto and US financial markets. Multiple sectors began to sell off, led by Big Tech, EV and Crypto companies.
However, this selloff was masked by crashing volatility and strength in other sectors. It did not take long for other financial assets to follow.
Particularly Bitcoin, which benefitted from a significant amount of upward advance and publicity stemming from multiple corporations, including Tesla Inc., releasing news about large scale purchases.
It did not take Bitcoin to reach incredible new all time highs. As of February 27, 2021, the all time high for Bitcoin is $58,360 USD, according to CoinMarketCap. As of this writing, Bitcoin is trading around $44,000 USD, down significantly from the highs.
According to CoinMarketCap, Ethereum’s all time high is $2,036 USD. It is currently trading at $1380 USD, also down significantly from its all time highs.
Altcoins are getting smashed as well.
So Why Is Everything Getting Destroyed Lately?
First, what is causing this dip?
As we have stated in previous articles, this selloff in financial markets is caused by several factors (in our opinion).
- Significant declines Covid19 cases, prompting confirmation that countries will begin reopening.
- Instability in the US Bond Market
- Instability in the currency markets (USD)
Essentially, the fact that the economy may be opening is actually BEARISH for the US stock markets. Whodathunkit, right?
Why is it bearish? Just think about it.
Stocks went up parabolically on the rumors of vaccines coming out, stimulus, etc., causing traders to rampantly speculate on the economic reopening. Now that those rumors have basically come true, and the global economy is essentially opening up, Smart Money is selling into the rally.
Sell The News…
Next up…Buy the rumor, sell the news…and the news is here.
The fact that economy is opening back up is, in a counterintuitive way, forcing the ultra bull market of 2020 to shift into reverse. The majority of stocks that added the most inflows were Big Tech, EVs and Crypto were based on the future expectations that the economy would recover.
Well, now it’s time to pay the piper for this extraordinary and historic level of speculation.
As a result of the forced economic recovery through unprecedented levels of money printing, Bond Yields are spiking. This is the true catalyst, in our opinion.
Bond yields spiking is causing dramatic competition for financial assets, and they’re clearly winning. In turn, this is causing instability in the currency markets, prompting a major reversal in the USD. Recently, the USD was hitting multi year lows, getting thrashed.
As bond yields spike, the bid on USD is reappearing. If you don’t know, here’s a secret.
Financial markets are engineered to go parabolic through extraordinary money printing and interest rate suppression, forcing everyone to pile into stocks and alternative assets.
As a result, everyone piled into next generation stocks and cryptocurrencies. In this case, EV stocks, Big Tech and cryptocurrencies/crypto stocks.
Now, it appears that the reverse is playing out.
So what will happen to Ethereum?
Ethereum is currently taking a beating, along with other altcoins. Particularly, Bitcoin Cash. Which, only recently hit multi year highs.
This is quite irritating for HODLers, who believe cryptocurrencies are still undervalued considering their utility.
Unfortunately, it cannot be helped.
So what will happen to Ethereum? Let’s check out the chart:
According to this chart, Ethereum has broken through a few support levels, the 20 and 50dma. It is only barely holding on to the 63dma. This is somewhat of an ominous sign.
Generally speaking, assets that are in a powerful uptrend barely break below the 20 day moving average. Since Ethereum has broken through the 20 and 50, as well as being down from ~31% from its all time highs, it is safe to safe that Ethereum is in a bear market.
Yes, a bear market. There are just the facts.
Well, what is our prediction?
We are giving this a 60-40% chance that this is the start of a crypto bear market.
We are still very very bullish on cryptocurrencies long term, but in the short and intermediate term, it looks like a lot of support levels have been broken.
There is a very good chance that Ethereum will continue to slide towards the 200dma (~$750) and probably break below it.
Again, there is only a 60% chance of this prediction. Considering more stimulus is on its way, you are going to see a lot of YOLO trading in hyperspeculative assets, like crypto and “tech” stocks. $1400 is a lot of money…And based on past behavior, it is likely that this trend of YOLO trading will continue.
Yes, there is a 40% chance (not bad) that the markets will recover after a fresh cash infusion to the trading community.
And yes, there is a very likely chance that the instability in the Bond and currency markets will stabilize. It’s all relative and its all related. So watch yields carefully.
Conclusively, we are very bullish on crypto in the long term. Even if we have to go through another multi year bear market, we believe the crypto markets will continue to grow in size and popularity over time. Especially Bitcoin, Ethereum, Dogecoin and Bitcoin Cash, among select others.
Buy the f’ing dip!
What do you think? Tell us in the comments below!
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