Cryptocurrencies are Consolidating Near the Recent Highs

Bitcoin remains the undisputed cryptocurrency leader. At the $27,850 level on May 19, Bitcoin’s market cap of around $520 billion was 46.3% of the total value of its asset class. Bitcoin was worth over twice the second-leading cryptocurrency, Ethereum, and only eight of over 24,300 cryptos had market caps over the $10 billion level.

Bitcoin plunged 77.5% from the November 2021 record high to the November 2022 low, where it found a bottom. The bearish price action was nothing new for the crypto that has experienced boom-and-bust price action since appearing on the financial scene in 2010. Moreover, the previous price declines have been higher on a percentage basis, and each selloff before November 2021 led to a new record peak for the leading crypto.

The $30,000 level has developed into Bitcoin’s technical resistance. Since mid-April, the price has hovered around the resistance level as Bitcoin consolidates, waiting for the next explosive or implosive move. Meanwhile, Ethereum’s price reached a low in June 2022, at 81.8% below the November 2021 high. Ethereum has run into technical resistance at the $2,000 level over the past weeks. The path of least resistance of Bitcoin and Ethereum, and the other over 24,300 tokens, depends on the bullish and bearish factors pulling the cryptos in opposite directions as they consolidate not far from the recent highs, double the prices at the 2022 lows.

Technical resistance levels

• Bitcoin’s technical resistance level stands at the $30,000 level, the top end of the recent trading range.
• Ethereum’s resistance is around $2,000 per token.
• Bitcoin has traded between $27,000 and $30,000 since late March.
• Ethereum’s current range has been from $1,800 and $2,000.

The factors supporting higher crypto prices

• Declining faith and credit in fiat currencies.
• Significant bottoms in Bitcoin and Ethereum in 2022.
• Acceptance of cryptocurrencies as alternative investments has increased.
• The leading cryptos have a history of boom-and-bust price action. The latest bust ended in 2022.

The roadblocks to an upside breakout

• Governments do not favor independent cryptocurrencies as they threaten the control of the money supply.
• Regulators have increased supervision, running contrary to crypto’s ideological thesis.
• Price volatility is extreme, and illiquid conditions limit market participation.
• Crypto’s intrinsic value is a subject of heated debate.

The asset class’s market cap remains low at $1.125 trillion

• On May 19, the cryptocurrency market’s total value was around $1.125 trillion.
• Bitcoin and Ethereum account for over 65% of the total market cap, with another over 24,300 tokens trading.
• AAPL’s market cap at $175.16 per share was over $2.75 trillion.
• MSFT’s market cap at $317.75 per share was around $2.37 trillion.
• The cryptocurrency market remains small compared to other asset classes.

Volatility = Opportunity, but Opportunity involves commensurate risks

• The boom-and-bust history suggests another boom period after the recent bust.
• Volatile assets offer opportunities for rewards, but the potential for profits comes with the risk of losses.
• Only invest capital you are willing to lose, as many factors can derail a potential crypto rally.
• Expect lots of volatility as the bullish and bearish factors pull cryptocurrencies in opposite directions.