The crypto market has been somewhat mixed so far this year. Sometimes it seems Bitcoin (USD-BTC) and Ethereal (ETH-USD) are going to take us out of the current volatility. At other times, it seems like they’re just adding more pain to investors’ portfolios.
It has not been a fun environment for growth, technology, and crypto investors. For its part, Ethereum is down 48% from the high it made in November. Bitcoin is also within a few basis points of that performance.
Clearly these two have held up better than some of the smaller cryptocurrencies that have come to life in recent years.
Despite the volatility, I think Bitcoin and Ethereum will survive the current bear market. The only problem is that no one knows when to bottom or at what price. However, that hasn’t stopped investors from asking questions.
Bitcoin and Ethereum are different
Ethereum and Bitcoin are like a Venn diagram. They have key differences that make them unique from each other, but they also have qualities that overlap with each other.
For example, both are blockchain-based digital currencies that can be used to buy and sell goods and send them to other users. However, they operate in different ways as Ethereum is moving to a proof-of-stake concept. That means:
Ethereum plans to switch to a proof-of-stake model, in which users can only validate transactions according to the number of coins they have, rather than the energy-intensive mining rigs in use now.
On the other hand, Bitcoin is based on a proof of work conceptwhich is a “competitive approach to verifying transactions” and is the original framework for verifying cryptocurrency transactions.
Another big difference? The amount of coins available. Bitcoin is capped at 21 million coins and there are almost 19 million mined already. In other words, around 90% of all available Bitcoin is already mined.
So how many Ethereum are there? There are currently more than 119 million Ethereum. However, that’s where Ethereum’s shift to a proof-of-stake concept comes into playas “updates are underway that will eventually eliminate the need for miners altogether.”
In addition to being sent to other users, Ethereum can also be used to buy and sell goods. In fact, Ethereum is actually faster transaction than to use Bitcoin.
While Ethereum may be a bit more functional in the real world, both cryptocurrencies act as a store of value. That is, both currencies are bought in the investors’ respective currencies (dollars, yen, euros, etc.) and have appreciated against their previous prices. At least, historically speaking.
However, Ethereum has other features. It is driving the NFT market right now and is also capable of smart contracts. That is, unlock payment portions when certain milestones are reached.
Where are Ethereum prices headed?
Now that we’ve cleared up some of that, what does the chart look like for Ethereum?
In January, Ethereum broke below the 200-day moving average and December flash low near $3,325. After bottoming near $3,000 and bouncing back, this area was resistance.
That was the first real hint that things were turning south; It marked a real change of character. A change that went from buying the dips to selling the rips. Since then, we have seen $3300 act as resistance as Ethereum continues to put in a series of lower highs – another bearish signal.
I think Ethereum and Bitcoin will survive, but that doesn’t mean they can’t go lower in the meantime.
If Ethereum can find its footing in the $2,500 to $2,750 area, then it is possible that we could see a lower form. However, until Ethereum can break that downtrend streak and regain its short-term moving averages, it is hard to be overconfident in a long position.
Below $2,500 puts $2,150 to $2,250 at stake. On a drop below that, we could see the 21-month moving average, then potentially the $1,730 area. In this scenario, we may be in the midst of an “ABC” correction, which would bring the $2,160 area back into play, at the very least.
If the sell-off continues, we’ll need to factor that possibility into where the “C leg” low might come into play.
As of the date of publication, Bret Kenwell did not have (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of future blue chips and is on twitter @BretKenwell.