You must have heard, unless you have lived in a cave in recent days, that the cryptocurrency market has suffered considerable losses (more than 34% in 6 days). In this article and video (in French but you can put English subtitles if you need too), you will find a summary of events but also tips on how to trade effectively in this rather uncertain period.
Here is a small summary for the most hermits among you:
A first crash took place on November 14, followed by a second on November 19 and the fall continues today to bring the market capitalization to around $140 billion. As a reminder, the maximum market cap we reached in January was 631 billion.
On Monday, Bitcoin experienced a 14% drop in price that brought it below $5,000 for the first time in 13 months. It is now at its lowest level since October of last year. BTC is currently trading at around $4,400, a decrease of about 30% in just one week.
But to be complete, the Bitcoin is not the only one to have suffered this chaos. The other Altcoins were no exception. Only Ripple took advantage of the recent crash to take Ethereum's place on the second step of the cryptos podium in terms of market capitalization.
The question everyone asks is: How far can this go?
The question is complicated. The current fall is so strong that a technical rebound is very likely, although previous falls have seen this rebound to be quite minimal. From a graphic and technical point of view, the next solid support is at $4200 and $3800. The latter is the point we were already talking about in February, but we did not hope to see it.
Finally, with the Fibonacci extension, we finally get the ultimate support of the $1800. A break in this support could be a fatal blow to crypto-currencies, but we are still a long way off, don't worry.
But then, what are the reasons behind this drop in the market?
We're already going to leave with the idea that there's a reason, which is not necessarily certain. Traders always need to hold on to reasons to explain situations that go against what they thought or hoped for, and often the explanations found are rather pretexts for a fall that was still announced.
1. The expiry of future CBOEs
Among the causes identified, the increase in volatility observed on November 14 could have been related to the expiry of future CBOEs, since an increase in volatility generally occurs at monthly maturities.
2. Bitcoin cash's hard fork
Nevertheless, we are forced to note that this event alone could not have impacted the market in this way. The other major event last week was undoubtedly Bitcoin cash's hard fork, which created major instability across the entire market. The "war" between the two main players in this hard fork, Roger Ver and Craig Wright, would have pushed Bitcoin.com to move its mining pool from the BTC to the BCHABC, further increasing the selling pressure already present on the BTC.
The panic triggered by Bitcoin Cash propelled the market into its capitulation phase, with all participants losing confidence in the future of the market even predicting the pure and simple end of crypto-currencies.
3. "Three-witches" session
Finally, another theory talks about the link with the traditional market. Indeed, this breach occurred at the time of a downward wave on the US markets, a few days before a so-called "3 witches" session, which corresponds to the expiry date of the 3 main contracts on the US market, which are futures, options on stock indices, as well as options on shares.
And now what's going to happen?
This crash is not good news, far from it, but it allows us to situate ourselves in the timeline of a crisis. We are definitely in the final phase, the question is how far it can take us. It is very likely that the supports at 4200$ and 3800$ or even 3200$ will be reached. As a last resort, the $1800 Fibonacci supports seem to us to be the last possible support for the BTC.
You put stop loss and they partially activated?
Don't panic, try to buy back on the supports. For the most patients, an order of $3200 is also possible. By doing so, in the event of a further decrease, you will reduce the average purchase price.
You don't have a stop-loss and still have your positions?
This is the most complex situation.
It is up to you to choose between risking missing an opportunity (by selling everything now and seeing a rebound) or risking losing more (not selling and seeing the price decrease).
Not being a fan of the HODL strategy, we would tend to suggest leaving the market and putting the average down buy orders we were talking about earlier. But if you are a long-term trader, and you are willing to accept an even lower price because, like us, you think that once the bottom reaches it will rise, you can always keep your crypto currencies and be patient.
To be honest, we were not expecting such a rapid fall but rather a gradual decrease on a support as we have seen. And in a way, it would tend to shorten beliefs. If the course is to fall, it might as well do it quickly and well, shortening the psychological marathon that started almost a year ago... And that may be the only positive thing about it.