On June 30, 2023, in a Barchart article that highlighted Ethereum’s outperformance compared to Bitcoin, I wrote, “Trend-following suggests that Bitcoin is sitting at a level that could be a launchpad to much higher prices, but the risk of falling into a bearish abyss is always a clear and present danger.” Ethereum was $1,849.112 that day, and Bitcoin was trading at $30,077.44 per token. While prices increased in mid-July, they tanked last week, falling to the lowest level in months.
Bitcoin fails and falls
After consolidating around the $30,000 level since late June, Bitcoin moved last week, and the price fell to the lowest level since June 16.
The chart shows the collapse that took Bitcoin to the $25,505.81 level on August 18. The price fell on significant liquidation. After reaching a $31,765.71 high on July 13, Bitcoin fell 19.7% at the most recent low.
Ethereum plunges since the mid-July high
Ethereum followed Bitcoin with a significant downside move last week.
As the chart shows, Ethereum fell 22.5% from $2,026.321 on July 14 to $1,570.685 on August 18.
Breaking out of a consolidation pattern often leads to a significant move higher or lower, and cryptos moved to the downside last week.
Liquidations as a herd of sellers descended on the market
The crypto selloff began on Thursday, August 17, after reports that SpaceX took a significant write-down on its Bitcoin holdings and sold the leading cryptocurrency. The selling triggered additional long liquidation.
In illiquid markets, bids to purchase tend to evaporate during selling bouts. As Bitcoin prices fell, Ethereum and other cryptocurrencies declined alongside the leading crypto. At the end of the week, Bitcoin was sitting at a two-month low, while Ethereum dropped to a five-month low as the price dropped to the lowest level since mid-March 2023.
Chinese economic concerns and rising U.S. bond yields send prices lower
Aside from the Space X selling and liquidation that followed, economic weakness in China, the world’s second-leading economy, has caused asset prices to drop. Meanwhile, rising U.S. bond yields have made U.S. government debt securities more attractive. The nearby 30-year U.S. long bond futures fell to a 118-14 low last week, the lowest level since November 2022. The long bond closed the week not far above the week’s low. The TLT ETF that tracks U.S. 20+ Year Treasury bonds also fell to the lowest level in 2023.
Rising interest rates make fixed-income products more attractive, causing capital to flow from stocks and other assets into bonds. Cryptos have suffered on the back of lower bond prices and higher yields.
Support levels to watch - Controversy seems to pick up steam on the upside
Technical support for Bitcoin is at the June 2023 $24,815.78 low. Below there, the critical level is the November 2022 $15,516.53 low. Resistance is at the July 2023 $31,765.71 high. Ethereum’s technical support is at $1,372.941, the March 2023 low. Ethereum’s crucial level stands at $883.159, the June 2022 bottom. Technical resistance for the crypto with the second-leading market cap is at the April 2023 $2,137.770 high.
Expect volatility to continue until regulators, governments, and other authorities recognize, legislate, and regulate the burgeoning asset class. Acceptance as a mainstream asset class will not occur until the debate between supporters and detractors reaches a compromise. Meanwhile, the controversy tends to increase as prices move higher, so expect the discussion about cryptos to decrease in intensity after the latest downside correction. As the market cap sits just over the $1 trillion level in mid-August 2023, the potential for significant systemic risks has declined.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
