Part of the beauty of cryptocurrencies is that because of their underlying decentralized protocols, anyone can participate in this burgeoning story. With no regard to borders or demographic categorizations, cryptos are purely democratized assets. So it’s the ultimate irony, then, that central bankers — the ubiquitous boogeymen — are now apparently the biggest proponents of cryptos.
At least that’s the implication behind the latest rumblings in the blockchain arena. According to a Fox Business report, the European Central Bank may soon introduce a digital version of the Euro currency, part of a multi-year project. Likely, Euro zone citizens can keep their holdings via a digital wallet, which would store this electronic equivalent of physical banknotes and coins.
With advocates of cryptos mainly focused on regulatory pressures, the idea of a competing central-bank-authorized digital asset would theoretically add more headwinds to the recently challenged blockchain space. Naturally, several crypto coins suffered steep corrections from the news, setting up the possibility of even deeper valuation cuts.
As you know, cryptos largely trade on trader sentiment — and this sentiment has gone down the tubes lately. Thus, for this weekly update, I’m going to exclusively focus the discussion on the technicals, specifically exploring the concept of Fibonacci retracement levels. Utilizing the sequence called the golden ratio, this theory suggests that publicly traded assets move according to mathematical patterns, often found in nature.
Though you might dismiss the seemingly fantastical premise, if you assess the latest fallout from the Fibonacci lens, you may arrive at a different opinion. In either case, let’s explore what happened over the last several weeks and key price zones to watch out for regarding the below cryptos.
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Cardano (CCC:ADA-USD)
- Dogecoin (CCC:DOGE-USD)
- Polkadot (CCC:DOT-USD)
- Litecoin (CCC:LTC-USD)
- Stellar (CCC:XLM-USD)
Since starting this weekly update initiative, I’ve been cautious about cryptos in the near term. The current malaise justifies my hesitancy. While the underlying fundamental for many of these coins are intriguing, at the end of the day, collective sentiment is what drives the digital market. No matter what, don’t lose sight of this concept.
Cryptos to Watch: Bitcoin (BTC)
Because cryptos tend to trade in relatively strong correlation to Bitcoin, this is the key asset to watch. Unfortunately, over the last seven days against the time of writing (July 13), BTC is down about 7%. At a few hundred dollars above $32,000, Bitcoin is trading near a critical technical support line.
Based on Bitcoin’s average daily peak price of $63,503, we can apply the three main Fibonacci retracement levels as follows:
- 61.8% retracement: $39,245
- 50% retracement: $31,752
- 38.2% retracement: $24,258
Please note that while 50% is not part of the Fibonacci sequence, technical analysts use it as a gauge to split the 61.8% and 38.2% retracement levels. From here, we recognize that BTC can’t drop much further from its time of writing price. Otherwise, sentiment could drive Bitcoin down to $24,000.
Long considered the number two among cryptos, Ethereum forms the backbone of various blockchain-related projects. However, this fundamental substance hasn’t been enough to prevent volatility in ETH. Over the trailing week, Ethereum finds itself down approximately 18%.
Worse yet, ETH is below the psychological significant $2,000 level. Generally speaking, we humans are attracted to whole numbers for their satisfying profile. Thus, dropping below that could signal trouble. Here are the retracement levels for ETH based on its average daily peak of $4,169:
- 61.8% retracement: $2,576
- 50% retracement: $2,085
- 38.2% retracement: $1,593
Coincidentally, the 50% retracement lands very near the $2,000 level, which puts Ethereum in big trouble. As I’m writing this, ETH is struggling to stay above $1,900. Unless a surge of investor support comes in, I expect Ethereum to touch $1,600.
Cryptos to Watch: Cardano (ADA)
Another example among cryptos as to why you shouldn’t base your investment decision solely on the fundamentals in this space is Cardano. Billed as the first proof-of-stake (PoS) blockchain founded on peer-reviewed research, you might assume ADA would skyrocket above the rest, considering that PoS is rapidly becoming the new protocol standard.
Not so. While ADA put on an impressive performance overall, it’s down double digits over the trailing week. Trading around $1.25 to $1.26, Cardano investors are risking downside based on the retracement levels from its average daily peak of $2.31:
- 61.8% retracement: $1.43
- 50% retracement: $1.15
- 38.2% retracement: $0.88
To be fair, ADA has a superior posture to other cryptos. Nevertheless, bulls will want to make sure the $1.15 level holds. If not, Cardano can drop into sub-dollar territory shortly.
Personally, I’d rather give this joke cryptocurrency a rest. However, the public demands information about Dogecoin — the good, bad and ugly. So, who am I to disappoint them?
To be sure, Dogecoin has been on a remarkable run, arguably the most remarkable among cryptos. It has turned seeming fools into crypto aristocrats, evidenced by many rags-to-riches stories. However, it’s also important to realize that cryptos giveth and they can taketh away. If you don’t secure your profits into cold hard fiat dollars — or at least some stable coins — you risk losing out.
As I’ve mentioned multiple times, DOGE has printed an ugly head-and-shoulders pattern. Here are the Fibonacci retracement levels based off its average daily high of 68 cents:
- 61.8% retracement: $0.42
- 50% retracement: $0.34
- 38.2% retracement: $0.26
At the time of writing price below 20 cents, Dogecoin is in big trouble. Trade accordingly.
Cryptos to Watch: Polkadot (DOT)
One of the most intriguing innovations among cryptos, Polkadot rose to fame because of its underlying open-source sharding multichain protocol. Essentially, the Polkadot protocol allows blockchain processes to run in parallel as opposed to a single linear trajectory; think a network of multilane freeways as opposed to a single-lane roadway.
Based purely on the fundamentals, DOT should be priced to the moon. However, you must never forget the economic element of cryptos. In other words, do these innovations matter enough for people to take a stake? In this case, perhaps not. Here are the Fibonacci retracement levels based on Polkadot’s average daily high of $47.95:
- 61.8% retracement: $29.63
- 50% retracement: $23.97
- 38.2% retracement: $18.32
While the situation might be different by the time you read this, as I sit writing this, DOT trades hands at below $14. That raises alarm bells.
The original number two, the introduction of other cryptos that go beyond the peer-to-peer networking capabilities of Litecoin has made LTC somewhat of a faded relic. Nevertheless, this does not mean that Litecoin is irrelevant. On the contrary, it’s one of the most popular vehicles for speculation.
Because Litecoin has been around the block, it enjoys a comfort level with the masses that other cryptos lack. Still, that alone doesn’t insulate LTC from the troubles when the broader sector encounters headwinds. Over the last seven days, LTC is down more than 8%: better than most altcoins but a hefty loss nonetheless.
Below are the retracement levels to watch based off Litecoin’s average daily peak of $386:
- 61.8% retracement: $239
- 50% retracement: $193
- 38.2% retracement: $147
Frankly, I’m getting concerned about LTC as it’s currently struggling to maintain $130. If things don’t improve right quick, watch out for more volatility ahead.
Cryptos to Watch: Stellar (XLM)
Essentially the Dogecoin of the last rally in cryptos (which ended in late 2017/early 2018), Stellar continues to forward incredible profitability metrics whenever the underlying sector has a good run. Further, the fundamentals that undergird Stellar is an intriguing one. If all goes to plan, its blockchain could replace clunky, expensive and time-consuming wire transfers.
Nevertheless, the investing community must care. And while they certainly did care months ago, positive sentiment is severely lacking at the moment. Over the trailing week, the XLM cryptocurrency is down nearly 11%, emblematic of the higher magnitude of pain in the altcoin space.
Based on XLM’s average daily peak of 73 cents, below are the key retracement levels to monitor:
- 61.8% retracement: $0.45
- 50% retracement: $0.37
- 38.2% retracement: $0.28
At present, Stellar trades hands at around 23 cents. Unless a paradigm shift occurs, XLM risks further losses.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA, DOGE, LTC, XLM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.