Cryptocurrencies Take a Beating as Risk Off Trade Perpetuates


2018 has not been kind to the cryptocurrency market. There were several problems, including the astronomical rise in the price in December of 2017. While the enhanced risk appetite of traders brought attention to cryptocurrency trading, the slump has turned many off despite all the benefits this new asset class offers. During the height of market euphoria, bitcoin prices soared to over 19K, which was a sign of enhanced risk. The question for many traders is whether the cryptocurrency market can reinvent itself in 2019.

November Continues to be a Bad Month for Cryptocurrency Prices

Bitcoin continues to take it on the chin and in the week leading up to the US Thanksgiving Holiday prices were under pressure. The deluge began on November 14, and in the 7-following trading sessions, the price of bitcoin dropped a whopping 33%, falling from $6,500 to $4,300. The decline in bitcoin was not the only riskier assets to see prices tumble. High flying stocks like Apple, Amazon, and Facebook were hammered as riskier assets took a beating.  What is clear is that bitcoin prices are now significantly oversold.

The relative strength index (RSI) which is a momentum oscillator that projects accelerating and decelerating momentum as well as overbought and oversold levels shows that it is sharply oversold. The relative strength index creates an indicator between 1-100 with levels below 30 considered to be oversold and readings above 70 are considered overbought.  The RSI is now printing a reading of 10, which is well below the oversold trigger level of 30. It is also the lowest level that bitcoin prices have seen in its history. Since bitcoin began trading in 2013, it has never seen an oversold condition this sharp. This could generate a rebound and present an opportunity for those who trade crypto currencies.

XRP Finally Gives Up the Ghost

There were some bright spots in the crytocurrency market in November, but the recent selloff has taken overshadowed them. XRP, which is a cryptocurrency that is a liquidity network that provides financial institutions with the framework to create cross-border payments, is very important to the Ripple-blockchain network. Suprisingly, there appears to be an enhanced liquidity transaction this week which saw approximately 16-million in XRP injected into the market. The move unfortunately created increased supply pushing the price of XRP down to $0.41 from $0.48. Traders have been able to defend the $0.40, but this target support could be revisited.

Are Crypocurrencies Immune to Higher Interest Rates?

The US has been raising interest rates for most of 2018.  As an asset class, that is priced in dollars, the cryptomarket has faced headwinds for those digital currencies that are paired against the greenback. Higher US rates make the dollar more attractive as you can earn nearly 3% as a differential by holding US dollars relative to cryptocurrencies. While initially many traders did not give this a second thought, it has become an issue as cryptocurrency prices stopped moving higher.  If the US continues to increase rates through out 2019, it will put further upward pressure on the US dollar and could generate headwinds for many cryptocurrencies.