Sunday Edition: What Asset Class Rises 300% In 2 Months?

July 16, 2017

Sunday Edition: What Asset Class Rises 300% In 2 Months?

To say the last few months have been wild for cryptocurrencies would be to put things mildly.

On April 1, all cryptocurrencies combined had a market cap of $25 billion. But by the beginning of June, that number had risen to just over $100 billion. That’s a 300% increase in value in just over 60 days…

By now, I imagine every investor has heard of bitcoin and it needs no introduction. The digital currency heavyweight itself was up roughly 160% in the same time frame, but the growth of other digital currencies contributed as well. Ethereum, for one, increased 439% in the same two months.

But by mid-June, things had taken another wild turn. By June 15, prices for most of the hundred largest digital currencies—bitcoin and ethereum, the two largest by market cap, included—had fallen substantially, with many falling by more than 10% in a single trading day.

Now, a month later, the total market cap for all digital currencies has fallen to $76 billion.

Of course, with digital currencies, wild swings like we’ve seen in the last few months aren’t all that unusual. Bitcoin, for example, historically has taken a tumble after each new record high is achieved, only to rebound to even higher highs after a shallow correction.

In fact, if we look at bitcoin’s chart since the beginning of the year, the pattern is clear: each new high has been followed immediately by a correction, and the price has then gone on to surpass the preceding high.

Bitcoin’s 2017 highs and corrections. Source: TradingView.

If the same will be true for the correction bitcoin is currently in, and I have a hunch it will be based on how the other corrections have looked, now would be a very good time to take a position in bitcoin. Here’s why:

Source: TradingView.

Looking at things with an Elliott Wave lens, if this is another shallow correction for bitcoin, we’re nearing the bottom of the C leg. This correction follows a common pattern where our B leg forms a contracting triangle, and our C leg is similar in length to our A leg in the correction.

It’s also encouraging that our C leg is nearly at the 38.2% retracement of the impulse wave from late March to mid June.

Source: TradingView.

Now, as good of a possibility as this looks, it’s also possible that this correction is actually nearing the bottom of a 5-wave A leg:

Source: TradingView.

If that is the case, the B leg could bounce to the last high reached—depending on the type of correction this ends up being, either a zig-zag, or a flat—before heading back down in the C leg of the correction. But even if this does end up being the case, now would still be a good time to take a position, and the bottom of the C leg would be a great time to add to a position.

So in either case, if you’ve been considering buying bitcoin, now’s a good time to do so.

My only caution is that bitcoin, and cryptocurrencies more broadly, are in their infancy and can really best be classified as “wildly speculative.” If that doesn’t scare you, there are gains to be had in the cryptocurrency market and this correction presents an excellent time to get in.