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Trading Follow-Through In Bitcoin, Ethereum A Pattern Investors Should Respect

By Andy HechtCryptocurrencyNov 29, 2021 05:41
Trading Follow-Through In Bitcoin, Ethereum A Pattern Investors Should Respect
By Andy Hecht   |  Nov 29, 2021 05:41
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  • New highs in Bitcoin on Nov. 10 a sign of another correction
  • Ethereum followed the same pattern
  • Not the first time for the leaders
  • Wild price swings create opportunities
  • Year-end is coming fast; $100,000 Bitcoin is a tall order

In 2010 someone told me about Bitcoin for the first time. While the idea sparked some interest, I am old school. I gave up video games in college in the late 1970s after spending hours playing Pong, Asteroids, and even Ms. Pac-Man.

I grew up in Brooklyn, New York. When I was young my father took me to a local arcade where Skeeball was a popular game. A good score yielded tickets. Those tickets were exchangeable for a variety of cheap toys. It was an excellent business for the arcade owners as kids poured more money into the games than the value of just about any of the prizes.

In my view, Bitcoin was a ticket for a worthless prize. After all, the price of a Bitcoin was below $1 when I first looked at the cryptocurrency. Not in my wildest dreams could I have ever have imagined that it would be worth nearly $70,000 at the most recent high.

Long before 2021, however, I began kicking myself. At $100 per token, I continued to think it was a fad. At $1,000, I thought it was a bubble. At $10,000, I began to really kick myself. At $20,000, I realized I'd missed the boat. At $50,000, I pledged never again to dismiss something I do not understand.

The personal tragedy is that I embrace libertarianism. Bitcoin and the other cryptocurrencies embody the ideology that transfers control of the money supply from governments to individuals.

A price pattern has developed in the leading cryptocurrencies. Each new event that expands the addressable market tends to lead to new and higher highs. The aftermath tends to lead to a correction.

The asset class’s unprecedented volatility makes the price swings head-spinning. We witnessed the most recent example of this after Bitcoin and Ethereum reached new record highs on Nov. 10. The chart action on those days validated and confirmed the price pattern.

New highs in Bitcoin on November 10 a sign of another correction

On Nov. 10, the leading cryptocurrency rallied to a new high at $69,355 on the nearby November CME futures contract. The push to a new peak ran out of buyers and the price turned south.

Bitcoin Futures Daily
Bitcoin Futures Daily

Source: CQG

As the daily chart highlights, Bitcoin futures rose to a new all-time high on Nov. 10 and closed the session below the previous day’s low. The bearish key reversal pattern on the daily chart led to more selling. That took the price as low as $53,625 last week, a 22.7% correction.

Bitcoin put in another bearish reversal pattern on Friday, Nov. 26.

Ethereum followed the same pattern

The second-leading crypto was on the same page with Bitcoin.

Ether Futures Daily
Ether Futures Daily

Source: CQG

Nearby Ether futures fell from a new peak at $4,902.75 on Nov. 10, reaching a low of $3,920.00 last week on Nov. 26. The 20% decline came as Ether futures put in the same bearish key reversal trading pattern on Nov. 10 and Nov. 26.

Not the first time for the leaders

Over the past years, new events have pushed cryptocurrency values to higher highs each time a product or news expanded the tokens' addressable market. The first example came in 2017 when the CME rolled out Bitcoin futures.

Bitcoin Futures Monthly
Bitcoin Futures Monthly

Source: CQG

The monthly chart shows the move to over $20,000 per token and the correction to just over the $3,000 level that followed. In April 2021, the listing of the Coinbase (NASDAQ:COIN) exchange on NASDAQ, which made trading in cryptos more accessible, pushed the price north of $65,000 for the first time.

Bitcoin dropped to the $28,800 level in June in the wake of the new high. Ethereum futures rose to a high of $4,406.50 in May before plunging to $1,697.75 in June as both cryptos lost more than half their value.

The bearish reversals and recent price action suggest that an even deeper correction could be on the horizon over the coming weeks and into the end of this year.

Wild price swings create opportunities

The huge price swings are frightening for investors. On highly volatile days, bids can disappear on the downside, and offers tend to evaporate on the upside. However, it creates a paradise of opportunities for nimble traders with their fingers on the pulse of the volatile markets.

Bitcoin and Ethereum have the critical mass that allows for trading activity. At of the end of last week, Bitcoin stood at the $54,460 level with a $1.023 trillion market cap. Ethereum, at $4,068, was worth over $480 billion. On Nov. 25, during a 24-hour period, over $32.9 billion in Bitcoin was traded, and more than $18.5 billion worth of Ethereum changed hands, according to CoinMarketCap.

The two leaders offer trading liquidity. The third leading crypto, Binance Coin (BNB), traded just over $2.72 billion over the same period, a fraction of the leaders.

When it comes to trading cryptocurrencies, volume leads to tighter bid-offer spreads and increases opportunities.

Year-end is coming fast and $100,000 Bitcoin is a tall order

Some of Bitcoin’s staunchest devotees have been calling for the price to move to the $100,000 level by the end of 2021. It nearly got there but stopped just short of the $70,000 level before the latest correction. With a little over one month to go, $100,000 could be tough to achieve.

Meanwhile, betting against Bitcoin, Ethereum, and other cryptocurrencies has been a losing game over the past years. In the coming weeks, the CME will roll out a micro Ethereum contract, which could increase the market penetration, which has led to more buying and higher prices in the asset class.

I'm not betting against higher cryptocurrency prices but would not be surprised if they fall to lower lows before buying interest returns. Only risk what you can afford to lose in the asset class that offers spectacular rewards with commensurate risks.

Trading Follow-Through In Bitcoin, Ethereum A Pattern Investors Should Respect

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Trading Follow-Through In Bitcoin, Ethereum A Pattern Investors Should Respect

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