In an October 18, 2023, Barchart article, Why are Cryptocurrencies in a Sideways Trend, I wrote:
Cryptos remain in a coma compared to past years because the bullish and bearish factors pull them in opposite directions. The longer the battle continues, the more likely a dramatic move will occur that either takes the values far higher or pushes them into a bearish abyss.
In that piece, I highlighted the bullish and bearish factors facing Bitcoin and many other cryptocurrencies. Bitcoin was at the $28,212.32 per token level on October 18, and Ethereum was trading at $1,572.423.
In late October, Bitcoin broke out to the upside, eclipsing the $30,000 per token level, leading the asset class higher.
Bitcoin breaks out
After falling from the late 2021 record high of nearly $69,000 per token to below $16,000, Bitcoin has made higher lows and higher highs in 2023.
The chart shows Bitcoin’s bullish pattern since the end of 2022. The leading crypto reached its latest high at just under $38,000 on November 9.
Ethereum follows
The cryptocurrency asset class’s market cap was at the $1.4 trillion level on November 10. Bitcoin accounted for 51.6% of the total value, while Ethereum had a 17.9% market share.
The chart highlights Ethereum’s rise to $2,137.77 in mid-April, the 2023 peak. After correcting below the $1,525 per token level in mid-October, Ethereum was near $2,100 on November 10. Ethereum has lagged Bitcoin but remains in a bullish trend in 2023.
Trends are critical in cryptos
The trend is always your best friend in any market. Cryptocurrencies have a history of explosive and implosive price behavior that causes dramatic price movement when prices follow their path of least resistance. In late 2023, the trends are decidedly bullish.
The next upside target for Bitcoin and Ethereum
The longer-term technical picture for the two cryptos that account for 68.7% of the asset class’s value displays lots of room for further gains.
The ten-year Bitcoin chart shows the next upside technical target at the March 2022 $48,187.21 high.
Above the April 2023 highs, Ethereum’s technical resistance is at the April 2022 $3,579.866 peak.
The boom-and-bust price action over the past years suggests that the latest bullish trend will attract significant trend-following buying. Moreover, as traditional investment assets have experienced considerable volatility, the demand for alternative investments like cryptos could turbocharge gains over the coming months. The lack of faith in governments and regulators could push cryptos to challenge the 2021 highs. The latest rally came on the back of speculation that regulators will soon approve spot Bitcoin ETF products, a significant event.
Since many investors are uncomfortable holding cryptos in computer wallets or on unregulated exchanges, regulated spot Bitcoin, Ethereum, and other crypto ETF products will likely increase the asset class’s addressable market. Even a tiny portfolio allocation from investable assets could cause an explosive move that takes the asset class to a new market cap high, above the late 2021 $3 trillion peak.
Lots of potential- The higher they rise, the risk of another implosion grows
The bullish technical break in October 2023 could lead to much higher prices for Bitcoin, Ethereum, and other cryptocurrencies as investors, trend-following traders, and speculators flock to the asset class. However, the historical trading pattern shows that the higher they rise, the greater the odds of another price implosion. Like a game of speculative musical chairs, when the bullish music stops, buyers become sellers, and prices can plunge.
Risk-reward dynamics are critical when approaching all markets. The extreme volatility in cryptocurrencies only exacerbates the boom-and-bust price action, which will likely continue. The current bullish trend is inviting, but it comes with substantial risks. Therefore, any investment comes with a total loss risk. Only invest capital you are willing to lose. The quest for oversized gains comes with the risk of commensurate losses.
The bullish trend will likely lead to higher highs, but the historical price action suggests that the bullish music will eventually end.
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.
