The Crypto Market Conundrum 

March 20, 2018

In my last article I stated that we had the potential for a lasting bottom in the crypto market, starting with a low in most coins on February 6th. However, in that article I also gave the conditions for that bottom to fail.

Those conditions, unfortunately, became reality. We have since seen both Ether and Verge, highlighted in that article, slide to new lows below the February 6th low. Bitcoin and Ripple did not fall below their February 6th levels, but did confirm the unlikelihood of that low marking the beginning of an impulsive wave.

In the process, Ripple is largely acting as expected.

As stated, we believe Ripple has seen a major top. Bitcoin, on the other hand, is now signalling a more complex correction than our previous expectations, and eventually it should see a new low below that of February 6th.

The conundrum that we now face is that many of the alt coins we watch have hit major support on this fresh decline. If they do not hold here, at the local bottom hit just yesterday, they will be signaling a much larger decline. Yet Bitcoin remains well above bull market support at $3500, and is signaling that it may attempt to take out the February 6th low at a later date. 

As crypto traders know, most small-cap coins are dragged down by Bitcoin during bearish waves. Should we then expect lower lows in small-cap coins later, when Bitcoin comes down in a C wave? If so, this will destroy the bull runs of many of our small-cap coins.

In our view we have three scenarios in front of us:

First, we have a decoupling between most alt coins and Bitcoin for now, where Bitcoin moves to lower lows, while alt coins start a bullish run. Or, most of the alt coins we follow, both small and large cap, we see an end to their bull runs or a higher degree correction, and our future targets are adjusted down. Or, finally Bitcoin has seen its low, but in a nonstandard structure. We’ll discuss this near the end of the article. 

Taking a closer look at Bitcoin, you may recall that in my last article I also said this: 

“If we see a 5 wave pattern [down] out of this zone and break $9840 strong, we’ll kill our entire new position and will assume we will see a lower correction.” 

This is precisely what we have seen, and so we see the impulse that we hoped had started on February 6th fail and remain corrective.

So what's next? At the time of writing we have the potential of a local bottom. It is our belief that this local bottom is the c of b of a larger B wave in this correction. This is the best explanation for what we have now, with three waves up and three waves down. We now expect a five wave C wave to complete this larger B wave. We have little confidence that we will see Bitcoin push higher than $18,775 before a larger C wave down takes hold. If the price moves over $18,775, then we’ll reconsider our thesis.  

In my last article, I said that I expected Ripple to take a direct run to the B wave top. Instead it failed after the 1-2 setup of C and took a detour. As shown in the chart below, we believe we have completed c of a lower b of B. This structure is much like our pattern in Bitcoin above. A reminder: We have a possible target of 20 cents for Ripple after the B wave top completes.

The structure in Ethereum is quite different, as it broke to new lows below those of February 6th. Further, it moved directly into support for our 4th wave of primary three, targeting $3560. Therefore, it is my opinion that if this area doesn’t hold, I must reevaluate my long-term count, and targets. I have attached both the hourly and daily charts with notes, so this is clear.

Verge is very similar. It came directly into long-term support in a very complex pattern that Ellioticians call the WXYXZ. The good news is that such a complex pattern usually signals the completion of a correction. The bad news is that as with Ethereum, we are barely hanging on to long-term support. If we don’t see a strong rally out of this zone, I will likewise need to reevaluate future targets. 

The question in my mind now is how Bitcoin, our bellwether, can be set up for further lows in this correction, while Ethereum and Verge, along with many other coins, small and large cap, appear to have stretched into major lows that should hold. Will those new lows fail further, or might Bitcoin have something surprising hidden under the hood?

Since the move off the February 6th low in Bitcoin is best described now as three waves, we can say an impulse is unlikely. But there are two alternate possibilities that would hold the February 6th low: a triangle and a leading diagonal, both of which can begin with three waves up.

The triangle involves 5 waves sideways, each of them subdivided by three waves. From this viewpoint, the bottom is in, but the correction will stretch out in time. See the attached chart of a possible triangle structure.

The leading diagonal is also made of five waves with each possibly subdivided as three waves. But instead of moving sideways it slowly grinds a northward course, a bit slower than an impulsive structure, before completing the first wave up. Diagonals also have deeper corrective waves than a standard impulse, requiring more patience in holding on to one’s position. See the attached chart.

In conclusion, we are making yet another attempt at a bottom here. Yet we now have less confidence that this will be the end of the correction, given the structure of Bitcoin and the fact that some of our small-cap and large-cap coins other than Bitcoin are now testing major support levels. I’ll check in again soon, after we have more action, to see if the view is made more clear. 

See charts illustrating the wave counts on Bitcoin, Verge, Ethereum and Ripple.  

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Ryan Wilday is an analyst covering cryptocurrencies at ElliottWaveTrader.net.  He has over 17 years experience trading equities, futures and options. He began trading cryptocurrencies in 2013, and today he melds his deep knowledge of the cryptocurrency market with Elliott Wave theory and Fibonacci Pinball.

During 1500s the Spaniards had taken 16,000,000 kilograms of silver from Peru.