Crypto-Alerts: Altcoins Are Potentially Toxic Right Now


(published to Seeking Alpha this morning)

This article was produced by Ryan Wilday with Avi Gilburt and Jason Appel.

While we are going to focus on altcoins in this article, I think it makes more sense for us to begin with our stance on Bitcoin (BTC-USD). For as Bitcoin goes, so goes the rest of the crypto market. Our team had fully expected, since 2019, to see $65,000 Bitcoin. But is there more to go, or has this bull market finished?

For the last few months, our team has expressed a cautious tone regarding Bitcoin in the short term. However, for the more patient investor, the ~50% correction since 2021’s high of $64,900 provided a buying opportunity.

In "Bitcoin: Stuck In The Mud, Miners Running Ahead," Jason shared our expectation that Bitcoin should drop to $24K- $27K before finding a bottom, barring a clear impulsive reversal before then. That said, one can use this area to dollar cost average during this bull market consolidation.

So, while we outlined the $24K region as a key support level before this correction started, it is now within reach. For me, personally, this is the sale I’ve been looking for on this pullback. Tactics may vary for each individual, but if you are interested in Bitcoin, consider this as a buying opportunity.

As far as altcoins are now concerned, I wish I could be just as optimistic. Unfortunately, this correction has unleashed technical damage on too many altcoins. So, if your focus is altcoins, you’d better be selective.

The Final Push

Before we discuss altcoins further, it’s important to consider that we are in the latter stages of this bull cycle. We still expect Bitcoin to reach $125K - $150K, but the path to that price region has more pitfalls than the path to $64,900.

As you can see from my chart, we have two counts, red and black. Black count, which is primary, should see one more high in wave circle-5 of 3, before starting the fourth wave, and the final all-time high before the next bear market. In red count, we are already in the fourth wave, with the next all-time high being the fifth and final of this cycle. Fourth waves are notoriously difficult as you see by the chop we are now stuck in. The bottom line is the easy part of this bull market is complete.

This view of Bitcoin is important for altcoins as they typically make the strongest upward waves during Bitcoin’s third waves. The Bitcoin action in 2017 was part of a large-degree third wave that lasted longer than a year. So buying any altcoin at that time was making easy money. Those days are over, and so is most of the smaller-degree third wave we saw in 2020-2021.

I shared this line of thinking in an earlier article: Crypto-Alerts: Are Altcoins About To Be Crushed? This means you have to now be more selective regarding the altcoins you choose to invest in than you were if you were trading cryptos in 2017.

We’ve already seen a lot of pain in altcoins since Bitcoin’s recent top. Most are familiar with the misadventures of DOGE investors. We were looking for a top about the time Elon was on SNL, not because of the show per se, but based on charts. And, that is exactly what happened. Since then, action suggests DOGE’s bullish cycle is complete. We have low probability support way down at 4 cents, but it is unlikely to hold. For now, I presume we will not see new all-time highs in DOGE for many years, if ever.

A pasted imageSource: Twitter

We wish this damage was isolated to meme coins. One by one, we have witnessed many altcoins destined for a similar fate, as they broke key support levels.

I highlighted three leading altcoins in the above-mentioned article: Elrond (EGLD-USD), Bancor (BNT-USD), and Cardano (ADA-USD). Unfortunately, of those three, Cardano is the only one in solid shape. These charts were all progressing in a potential third wave alongside Bitcoin’s third, but Elrond and Bancor took a bad turn.

Using our Fibonacci Pinball method, once a third wave is confirmed, a chart must stay above the 50% log retrace of that third wave. That retrace is the level of a very deep fourth wave. If that level is breached, the chart is considered to have failed to follow through on an impulsive five-wave structure, at least reliably so. Such charts are then classified as corrective structures and labeled ABC, vs. 1-5. While it is possible to complete as a diagonal, the risk of failure before getting one more high during this bullish cycle is quite high. Worse yet, it is possible that some of these charts start to move to all-time lows.

These breakdowns are quite common in the latter stages of a bull cycle. We treat all altcoins as speculative trades that yield outsized returns commensurate with heavier risk relative to Bitcoin. So our position size is never large. However, in our years providing analysis to subscribers, we’ve seen far too many altcoin traders hang on to such assets during bear markets.

Elrond

In the Elrond chart, I have two counts overlapping each other. The red count was the attempted impulse. The blue box was support for the fourth wave and red (iv) showed the point it should have held. Instead, the price action has turned that support region into resistance. I now consider the red count invalid, and the black ABC structure is primary. The issue with ABC structures is there are no reliable supports below. While there may be a bullish path for EGLD, it is not clear enough to trade and it’s possible that it breaks to new all-time lows.

Bancor

BNT also broke support, as evident by my blue rectangle. The difference between EGLD and BNT is that BNT didn’t rally as high fib-wise before breaking. This leaves a potential alternate, rendered in red, which is called a leading diagonal. We can consider this red count slightly more probable than the red count in EGLD. However, I will not rely on this count until we see a strong impulsive reversal out of this region. Further, if BNT drops below $1.46, red count will be considered not reliable at all.

Cardano

As stated above, Cardano is a bright star among altcoins. In "Crypto-Alerts: Opportunities In Altcoins," I gave the third wave a target of $2.80. Cardano missed it slightly with a 2021 high of $2.46. Now that wave three is complete, our bull market support for wave 4 lies between 65 and 42 cents. Despite Bitcoin’s run downhill, ADA has mostly traveled sideways, staying far from long-term support. That’s bullish; however, I’d rather accumulate near support where the dollars at risk when hitting the stop (40 cents) are much less. Should that support hold, the fifth wave should reach between $4 and $6 with a slight leaning toward the lower since the third wave came in low.

Disturbing Trend

Not only have BNT’s and EGLD’s bullish outlooks been undermined, but we have had many more of our favorite altcoins invalidate or put their bull moves in questionable condition. Graph Token was the first we watched closely invalidate. Coins that are in bad shape but not broken yet include SushiSwap (SUSHI-USD) and Fantom (FTM-USD), to name a couple.

Besides Cardano, we continue to accumulate Ethereum (ETH-USD). Binance (BNB-USD) is another coin that looks strong, for now.

Conclusion

As stated above, we believe that the current bullish cycle in Bitcoin is in its latter stages before the next long bear market begins. Against that backdrop, we’ve seen the charts of many altcoins fail, while many more hover over invalidation levels. This is not uncommon as a bull cycle begins to wrap up.

This suggests to us that crypto investors need to keep Bitcoin the focus of their crypto investing dollars for the remainder of this cycle, and to a partial degree Ethereum. The opportunity to ride other altcoins much higher is beginning to sunset, at least until the next major cycle. As shown above, we even had to change our opinion on coins we favored earlier in the year.

At the same time, Bitcoin is offering a great buying opportunity not seen since March 2020, and our target of $125K Bitcoin remains in our crosshairs.

Ryan Wilday hosts the Crypto Waves service on ElliottWaveTrader.net.


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