Chart Of The Day: How To Play Ethereum's Contradictory Trends

  • Cryptocurrency Analysis
  • Editors Pick

Though nearly all institutional investors keep an eye on cryptocurrencies, most aren't necessarily fans. Indeed, the digital token space receives scant exposure compared to more traditional investing vehicles from the bulk of mainstream, professional financial networks. So, when there's bullish crypto-related news on Bloomberg, it's of note.

Joey Krug, co-chief investment officer at digital asset investment firm, Pantera Capital Management, is confident that all contenders now vying for Ethereum 's position as the second largest token by valuation are unlikely to succeed. Bolstering that claim, he said:

“If you roll the clock forward 10 to 20 years, a very sizable percent, maybe even north of 50%, of the world’s financial transactions in some way, shape or form will touch Ethereum.”

Accordingly, ETH is one of Pantera's top three investments.

We don't know if he's right about that fundamental trend, but we can offer an opinion on whether now is a good time to invest in Ethereum based on its technical trends. By that measure, the answer is no.

ETH/USD Daily

The price proceeded to fall below its falling channel after cutting below the 200 DMA, threatening an even deeper decline. The 200 DMA's significance is made clear by the fact that the Jan. 6 closing price was directly on top of it, and the opening price on Jan. 7 was immediately below it. Traders simply couldn't surpass it in just one go.

Trends aren't a simple thing. There are always conflicting forces affecting an asset, and it's the technician's job to measure and weigh these forces and attempt to gauge a trajectory.

This can be as tricky as it sounds. The falling channel—whose bottom the price just broke through—earlier dismantled the previous rising channel since the July 20 bottom. However, there is still a potential, year-long rising channel. A trader's goal is to try to steer a path through stormy 'waters,' and that's what we'll attempt to do here.

Right now, the price may be forming a rising flag, bearish after the exceptionally sharp drop since Jan. 4, during which the cryptocurrency wiped out nearly a quarter of its value. We can see how the volume spiked during the fall, then dried out during the rebound—telltale signs of a bearish flag.

Trading Strategies

Conservative traders should wait for the price to bounce off the broadest rising channel since January 2021, somewhere around $2,500, at the current channel's angle.

Moderate traders would buy when the price provides a downside breakout to the rising flag.

Aggressive traders could short now, according to a trading plan that fits their needs. Here is a generic example to showcase the essentials of a money management plan:

Trade Sample – Aggressive Short Position

  • Entry: 3,260
  • Stop-Loss: 3,310
  • Risk: 50
  • Target: 3,010
  • Reward: 250
  • Risk-Reward Ratio: 1:5

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