Reading time: 3-5 minutes (859 words)
The crypto crash is happening:
Ethereum started to drop first and other coins followed right after. Currently ETH is retesting the former high from januari 2018 (black horizontal line):
The price is also near the 200 moving average (purple line):
If price drops below $1200 we could see a free fall. As most traders are all looking at the same thing, most will probably set buy orders around $1200 and their stop loss below the MA200 or around $1100 - $1000.
Others will also notice a head and shoulders pattern which indicates that price might drop further.
Bitcoin is showing the exact same thing:
It’s near the MA200 (purple line) and the MA227 (red line). And also near the crucial and psychological price of $20,000 (black line). $20,000 will be the point where almost everybody is looking at. It acted as resistance and support multiple times before and it’s a very psychological price point. Most traders will probably set their entry’s around $20,000 and their stop losses below. Because these are obvious entries and exits, bigger players (whales) might target this and start stop loss hunting. The real panic begins when price drops below $20,000.
Reasons behind the crash is the high inflation (8%-10%) in the US and Europe. In order to fight the high inflation, the central banks (FED and ECB) are raising interest rates. And they will probably raise interest more in the upcoming months/years. Inflation is on a huge rise due to high energy and oil prices. Most of this is caused by the war in Ukraine vs Russia.
The electronics market also experienced much pressure the last few years due to covid-19. Computer chips are sold out and production is not on par yet. This is causing high inflation in computer parts (used for computers and cars). We still haven't recovered from covid-19 and with the current high inflation and war in Ukraine we haven't seen the end yet.
People living near poverty won’t be able to pay the bills anymore. Many companies stopped hiring new people and are even firing people. Meanwhile it’s uncertain how covid-19 will develop in the upcoming winter. Many air travel and holiday companies will be affected.
In other words, a lot of things are going on at the same time. Where will it go? Nobody knows.
First of all, don’t panic. The simple fact is that the fundamentals of bitcoin and ethereum (and most other coins) did not change. Bitcoin is not hacked or anything. People tend to pull out their money when things are not looking great. While that might be a good approach, it all depends at what price you bought it. If you bought bitcoin for $50,000 then you probably had good faith in bitcoin. Because the fundamentals did not change, would this not be a good time to buy more?
If you panic sell and take a 50% loss that will cause you to probably never invest in crypto again. There is not a single market that only goes up. Rebounds like this will happen. Price might stay low for a couple of months or even years.
In this example I’ve set multiple buy entry’s all the way down. This way, you will always buy at the lowest point. Your biggest positions are in the last few entries. It’s up to you to determine how many orders you want, how low you want to go and how much you want to buy each step. The crucial part is that you already need to set the order in the order book before the panic happens. The drops you see in the above chart happened within a few hours. If you manually have to place trades and you just entered a meeting at work you’re too late.
This strategy works well when people are panic selling. Most of the time this results in a big spike down and a bounce back up. Most people try to catch the dip but that is impossible. When setting multiple buy orders down the line, you will always get the best average price.
You can apply the same strategy when selling. You start to sell a bit more each time the price goes up.
Only use this strategy if you believe in the asset you are buying. Keep in mind that anything can drop to $0. We all remember Luna, in case you missed it:
From $80 to $0.00006 in a few days. Buying the dip is a great strategy but if the underlying asset is failing due to whatever reason you’ll still lose all your money. So always:
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