It has not been smooth sailing in the crypto world — not by a long shot. Ethereum (CCC:ETH-USD), Bitcoin (CCC:BTC-USD) and others have been all over the map lately and recently suffered a bit of a breakdown.
For now, the group is bouncing nicely, and investors who recently became long must be breathing a sigh of relief. However, that does not necessarily mean we have the all-clear.
While Bitcoin, Ethereum and others certainly have long-term potential, they also face short- and intermediate-term headwinds. One such headwind is the U.S. stock market. When stocks go down, we tend to be in a “risk-off” environment. Generally, that correlates to the crypto market too. As it stands, crypto is take a beating as uncertainty builds in the stock market.
Are we on the cusp of more losses or did bulls just dodge a bullet?
When I look at the chart for Ethereum, it looks like we just had a breakdown. However, support came into play near the $3,000 level as Ether bounced on prior support and the weekly VWAP measure.
That said, it still has to reclaim a few key areas as well.
The bounce has been impressive, but until Ethereum can push through the declining 10-day moving average, the rising 200-day and the December low/flash crash low near $3,327, it’s hard to trust the rally.
It wasn’t that long ago when Ether, Bitcoin and others were hitting new all-time highs in November. Despite the solid rebound we’ve seen since, Ethereum remains 35.4% below its all-time high, while Bitcoin is down 38.4%.
That’s bear market territory for those wondering.
So where does that leave us now? Well, in a tough place actually.
If Ethereum can’t regain the key levels outlined above, it leaves the $3,000 area vulnerable to another test. Should the cryptocurrency retest this zone and fail to hold it, we could be looking at a correction down to the $2,500 to $2,650 zone.
If Ether does reclaim these marks, it could put the $3,650 zone in play next. However, it will be important for it to snap its trend of lower highs in order to help establish a new uptrend.
Otherwise, Ethereum will remain vulnerable to a potentially deeper correction.
Something to keep in mind: Notice the current “risk-off” nature of the stock market, which I mentioned earlier. If we continue to see volatility in the stock market and a larger decline, it’s likely to impact crypto as well.
Ethereum is going through an unfortunate pullback at the moment, but there are some positives to pull out of the situation. First, it’s outperforming Bitcoin, which is a nice realization for the bulls.
Second, despite the pullback (and how long it ultimately lasts), Ethereum is one of the few digital currencies that is likely to survive for the long term. Digital currencies will likely come and go, but I personally don’t think that many of them have any long-term viability.
I don’t say that as someone who has a bias against cryptocurrencies or as something who is staunchly opposed to crypto. It’s unfortunate that so much of the digital currency space is being used for illegal practices, extortion and ransom.
When it comes to surviving, Bitcoin and Ethereum are different — particularly the latter.
Ethereum continues to evolve, most recently taking on its Ethereum 2.0 adoption. It continues to become faster and more efficient. It can be used in a reasonable amount of time for transactions and is considerably faster than Bitcoin.
While it’s still far more common (and convenient) to use a credit card, Ethereum is working to close the gap.
It can also be used in smart contracts as well, unlocking portions of payments when certain milestones are hit. It also acts as a store of value for investors, gaining in value over time (so far, anyway).
In short, there are multiple reasons that Ethereum should not only survive, but thrive in the future — and that’s coming from someone who believes most cryptocurrencies are near worthless.
Ethereum will attract investors and those who will actually use it for real-world applications.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.