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ETH – Tread cautiously and understand that the macro environment is less than ideal

Today is US Independence Day and the stock markets are closed. But not the crypto markets. The last few months have wreaked havoc across the board, and we don’t seem to see any light at the end of the tunnel. 

It has been depressing to say the least and a very humbling experience. I am sure there would be many in a similar boat as me, but it doesn’t stop us from continuing to seek for the light that might be there around the corner any time. 

However, till we see the ray of light, we need to be cautious, tread carefully and understand that the macro environment is less than ideal at the moment. We can’t led the guard down and should prepare ourselves for any eventuality. 

Ethereum has been heading into the 4th of July long weekend stuck in a tight range unable to decide whether to move up or down. There is uncertainty among the buyers and sellers with neither taking control of the proceedings as of now in the short term. 

For the long term however, the sellers are still firmly in control. As you see in the diagram below, the 21-day moving average as well as the 50-day moving average is firmly trending down. There is potential support at 878 USD, but the trend is firmly down. 

21 day and 50 day moving averages are heading down

ETH has come down by 81.88% from the peak of 09-Nov-21 to 19-Jun-22. This is a total of 222 days already from top to bottom. At the same time, AMZN is down 42%, TSLA 45% and LCID 71%. The current macro environment has taken everything down along with since the Fed starting tightening and the cloud over Russia-Ukraine conflict started turning grey.

How far further down can ETH go? It’s difficult to tell as partly the current situation in the crypto markets have been caused by internal turmoil and infighting by different groups of crypto participants and extensive leverage. The last time, when the crypto markets had fallen from 12 May 21 to 20 Jul 21 (ETH being down by 60.60%), the markets had been surprisingly robust which had started giving a feeling of resiliency in the cryptosphere. This feeling has taken a beating. Three events have kickstarted this process over the last few months: 

  1. Using bitcoin as collateral such as what LUNA foundation did before the collapse
  2. Excess leverage/Under collateralization 
  3. Using FUD to create panic and failure for some and forced opportunity for others across the ecosystem. There has been increased toxicity because of the crash of such a proportion that we have seen for the last 222 days. 

Another question people ask and keep seeking an answer for is: “Is it the bottom?”. Frankly no one knows and anyone who professes to know is telling a lie. Under the current macro environment where there is still uncertainty on how far Fed will go around tightening and there is still uncertainty on how far the Ukraine military operation/war will spill over, it’s difficult to predict. 

While it’s difficult to predict how low ETH is going to go, just as it was difficult to predict how high ETH will go, there are 3 schools of thought in terms of actions that investors can take: 

  1. Wait for confirmation: This is the most prudent thing to do – to look for confirmation that buyers are back in control and the 5 days and 21 day moving averages are starting to trend upwards before you jump in 
  2. Dollar Cost Average: Some of you who find it difficult to determine when the trend is turning, can continue to dollar cost average. In the long run (if you believe an asset holds strong fundamentals), dollar cost averaging is a good way to build wealth over time 
  3. For some this can be a generational buying opportunity: There are groups of people who think, this could be a generational buying opportunity and we are unlikely to see such opportunities to get into the bitcoin/Ethereum bandwagon in the future. For these people, the current prices would be a good buying opportunity. 

Whichever camp you might belong to, I wouldn’t recommend putting all eggs in as the environment is volatile and we could see a massive draw down still. Using leverage for most people in this environment should be a no-no and taking more risk than you can chew should be a no-no. 

Disclaimer: All information in the site is provided for informational and educational purposes only. We are not a financial advisor. The information in this article is not intended to imply any recommendation or opinion about a financial product and is not a financial product advice. You should obtain independent advice before making any investment decisions.

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