Crypto Crash 2018: A Correction or Something More Ominous?
The sky is falling in the cryptocurrency world, as the prices of cryptocurrencies are in the grips of a painful sell-off. Given the parabolic nature of the rise, investors continue to grapple with bubble theory. In a matter of days, the entire basket of cryptocurrencies has shed half of their market capitalization. The carnage has been widespread and none of the major cryptocurrencies have been spared.
Bearish articles are making the rounds and cryptocurrencies such as XRP and ETH are making headlines with titles like “Ripple Crash” and “Ethereum Crash Now,” which is putting investors on edge. To put things into context, the sell-off in these two major cryptocurrencies has been substantial and much of the gains created earlier this year have been erased, which is perhaps why these articles merit such headlines.
The question that I am assuming is on everybody’s minds, including mine, is: Is this the beginning of a much larger ominous correction or is this just another opportunity within the context of a much larger bullish trend?
I am in the latter camp and I still believe that both Ripple and Ethereum are primed for higher prices, which means the current sell-off is just another opportunity with the context of a much larger bullish trend. I derived this conclusion by analyzing their price charts, which is a method of investment analysis called technical analysis. I have been studying and applying this method for nearly two decades, and I believe that technical analysis is the best way of basing long-term valuations on both ETH and XRP prices.
Before I outline why I believe both XRP and ETH are primed for higher prices, let’s take a closer look at the sell-off that has currently gripped these two cryptocurrencies.
Ripple Crash
It is hard to fathom that at one point, the Ripple market cap was the second-highest behind Bitcoin when XRP prices hit a high of $3.31 on January 4. This did not last long because a few weeks later, the Ripple price came crashing down and it is currently sitting at around $1.64.
In actuality, this sell-off came as no surprise, and I foresaw such a development. I outlined my expectations for a correction on January 11, in a publication titled “Embracing the Correction in (XRP) Ripple Coin Prices,” because there were technical developments suggesting that lower Ripple prices were likely to prevail. I even went out on a limb and suggested that I cannot and would not rule out a test of $0.80.
The reason why I felt like the $0.80 handle was a possibility is because this was a level suggested by the Fibonacci retracement numbers. This technical tool is highlighted on the following XRP price chart.
The Fibonacci retracement numbers have been annotated on the Ripple price chart.
Fibonacci retracement numbers are a very popular technical trading tool used to identify counter-trend price objectives. In theory, when the price stages a correction within a bullish trend, the price will correct approximately 50%-62% of that move before the bullish trend reasserts itself and higher prices prevail.
I originally stated that I would not be surprised to see XRP prices fall to approximately $1.40 before Ripple finds its footing, with the caveat that I could not and would not rule out a test of $0.80.
The current sell-off that feels like a crash is testing the 78.6% Fibonacci retracement level that I said was a possibility. I have the inclination to believe that this level will hold, and if it does, it will reaffirm my view that the predominant trend remains tilted toward higher prices. Therefore, it is only a matter of time before XRP prices are forging new highs.
Ethereum Crash Now
The correction in Ethereum is similar in nature to Ripple’s, but the sell-off has not been as dramatic. Neither was the run-up that preceded it.
The following Ethereum stock chart illustrates a bullish trend that began in July of last year, which has been overlaid using the Fibonacci retracement numbers.
This XRP price chart illustrates that the current correction in price has retracted 50% of the move that began in July 2017, and this is within the context of a normal healthy pullback within a bullish trend.
Aside from just the Fibonacci retracement numbers suggesting the correction is healthy, the trend remains bullish as it contains the quintessential characteristic that defines all bullish trends, which is a series of higher highs and higher lows.
The pullback in price has found support at the previous high that was set in December, and this price action is creating a stair-step pattern like the one that Bitcoin created mid-last year right before the trend accelerated in a parabolic fashion.
At this moment, there are not any indications suggesting that this sell-off is anything more than a correction within a bullish trend.
Where Could Ripple Go?
I have already established that XRP prices are currently testing a significant level of price support. I believe support will hold and that this crypto crash that has just taken place is in fact just another correction within a much larger bullish trend.
This much larger bullish trend, which is constructive in nature, is highlighted on the following Ripple stock chart. It is the reason why I believe higher prices are likely to prevail.
This XRP price chart illustrates a bullish trend, which is constructive in nature.
Constructive price action consists of an alternating wave structure containing two predominant waves: an impulse wave and a consolidation wave.
The impulse waves, which are highlighted in green, are advancing in nature, and they capture the period in a bullish trend where price makes a sustained move toward higher prices.
The consolidation waves, which are highlighted in purple, are corrective in nature and they capture the period in a bullish trend where price corrects and refrains from advancing. Corrective price action unwinds any overbought conditions that were created and this is necessary in order to create the environment where a new advancing impulse wave can develop.
This wave structure is why I believe that the current move toward higher Ripple prices has not yet peaked, because aside from just suggesting that higher prices are in development, this wave structure can be used to generate a Ripple price prediction.
The theory behind this wave structure is that impulse waves separated by a consolidation wave tend to mirror each other. Under normal conditions, I would use a linear approach, but because cryptocurrencies have a tendency to make parabolic moves, I will use the log-based approach instead.
The log-based approach involves taking the length of the initial impulse wave and extrapolating that length from the base of the consolidation wave. Applying this method to the Ripple price chart produces a price objective of $9.00, and this price objective is why I continue to believe that the current sell-off is just a correction within much a larger trend.
This notion of higher prices is being supported by the moving average convergence/divergence (MACD) indicator.
MACD is a momentum indicator that uses the crossing of a signal line in order to determine whether bullish or bearish momentum is influencing the price action. This information is pertinent because price cannot make a sustained move higher without bullish momentum.
The MACD indicator is currently in bullish alignment, supporting the notion that higher prices are likely to prevail.
Why Ethereum Price Will Be Huge Long-Term
The price action on the Ethereum price chart is also constructive in nature, and the bullish trend created by it is highlighted on the following ETH price chart.
This wave structure is very similar to the one that was highlighted on the Ripple price chart. Therefore, aside from suggesting that higher ETH prices are currently in development, it too can be used to create an Ethereum price prediction.
Once again, the log-based approach is the most applicable way of generating a price objective because cryptocurrencies have a tendency to make parabolic moves. Applying the log-based approach to the ETH price chart produces a price objective of $9,000. From current prices, this objective suggests that the bullish trend toward higher prices is still in its infancy. Therefore, the current sell-off is just a correction within a much larger bullish trend.
The notion of higher prices is being supported by the MACD indicator, which remains in bullish alignment.
I fully expect that one day, ETH will hit $9,000. In the process, the Ethereum market cap will surpass that of Bitcoin.
Analyst Take
I firmly believe that the current sell-off that has just gripped cryptocurrencies like Ripple and Ethereum is just a correction within a much larger bullish trend. My beliefs are based on the wave structure that creates constructive price action on both the ETH and XRP price charts, which suggests that both these cryptocurrencies have further to appreciate before everything is said and done.
Patrick Brik CFA, BAS
https://www.profitconfidential.com/cryptocurrency/crypto-crash-2018-ripple-ethereum-still-have-huge-potential/