What a roller coaster ride for the cryptocurrency sector. From a technical perspective, many of the crypto charts actually looked set for a new uptrend. Many charts had range breakout confirmations and many traders were ready to either jump in or await the retest. Those who did jump in surely have had their stop losses taken out which just intensifies the current sell off. Recent lows for bitcoin have been taken out and I know for sure that there must have been many stop losses there.
But before we look at the charts, let’s talk about the fundamental event. Yup, you have probably already heard it by now. The cryptocurrency market is being rocked by the near-collapse of one of the world’s biggest cryptocurrency exchanges, FTX.
A surge of withdrawals caused a significant liquidity crunch for FTX. With news of liquidity issues, more withdrawals were triggered. On Tuesday, FTX struck a bailout deal with Binance. Binance said that it agreed to buy FTX’s non-US unit. This actually gave some reprieve for cryptocurrencies, even seeing Bitcoin pop $1300 in a matter of minutes. A recovery looked like it was playing out. From a technical perspective, it appeared as if the retest zones were holding. Nope. The subsequent sell off was even larger.
One important thing to note here is that what is going on in the digital asset world right now involves two of the largest names (and some say the most powerful people) in the cryptocurrency market. FTX founder Sam Bankman-Fried and Binance chief executive Changpeng Zhao. Mr. Bankman-Fried is definitely feeling it, seeing 94% of his wealth eviscerated and is no longer a billionaire.
Some actually say that Mr.Zhao from rival Binance triggered this FTX pressure. On Sunday, he tweeted that Binance would sell off its holdings of FTX’s digital token, FTT. The token has lost 80% of its value this week.
Analysts are calling this event a black swan event for cryptocurrencies and adds more fear in the space. The so-called crypto winter we are in just got a lot more interesting, and crypto bulls will be in more pain for some time.
What do I see happening going forward? Months ago I spoke about crypto regulations and how it would be bullish for cryptocurrencies. With this FTX event, more politicians will cry for regulations on cryptos. Remember, since cryptocurrencies are not regulated, technically these exchanges do not need to offer financial insurance on your money. Heck, they likely don’t even have the money to ensure smooth liquidity in the event of massive withdrawals. We have seen many crypto exchanges fall due to this.
Regulations would mean exchanges will need to have the proper liquidity and adhere to SEC and other financial regulatory rules. Large investment funds will find investing in crypto more enticing with regulations since they know that their money is protected by regulations. Big money will flow into the crypto space, but then crypto becomes something it did not want to become. The initial idea for crypto’s was to be a decentralized market that big government, big banks and Wall Street could not get their hands on. Perhaps the hardcore crypto money will now run into the Defi space as this space is turning out to be what crypto was originally supposed to be.
Let’s take a look at some of the other crypto charts before we take a look at Bitcoin:
Major clappage on the charts. Litecoin actually confirmed a breakout recently but momentum has been killed.
Ethereum will be getting a lot of attention, especially if we close below current support at $1270. Sure looks like we will. $1000 then becomes the next major target for Ethereum and then much lower if this breaks.
Bitcoin is also set to break below its major support.
Back in early September, I wrote an article titled, “Bitcoin to $12,000?“. It angered some crypto fans, but all I was doing was applying my market structure strategy which has a high probability of success. I warned bitcoin bulls that $12,000 is coming because we still need to make a weekly lower high on Bitcoin.
Bitcoin is set to confirm its first lower high on the weekly chart ever since we broke below support at around $30,000 way back in early June 2022. $12,000 is the next support. For bitcoin to reverse, we would need to see the weekly candle refusing to close below $18,500. Buyers need to step in and prevent this breakdown trigger. Going forward, $18,500 is now support turned resistance for bitcoin.
Perhaps some more bad news to ponder. Cryptocurrency continues to act as risk on assets moving with stock markets. If we get a hawkish Fed and a stronger dollar putting pressure on risk on assets, bitcoin and other cryptos will have more room to fall. My next level if $12,000 breaks on bitcoin would be $5000 zone but I would watch $10,000 for some reaction.
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