Key takeaways from this year’s cryptocurrency slump
This year has not been kind to investors. Stocks in developing countries have recently fallen to the bear territory while investors in commodities had nothing to smile about as most of them declined. Crypto investors were the most affected as the market capitalization declined by more than $700 billion. Here are key takeaways from this year’s slump.
In the crypto industry, research documents showed that most crypto investors aimed to benefit from the upward trend. As the price started to decline, investors dumped their holdings. Secondly, the decline was an important lesson in the concept of price action. As traders, the goal is to benefit when the price is moving both up and down. In 2017, as the price moved up, it was an opportunity to buy currencies. In 2018, as the price declined, it was an opportunity to sell or short the currencies.
Thirdly, the decline was also an important lesson on risk management and the need to stay protected in the financial markets. Investors who had placed intelligent stop-losses were better-off than those who had not protected their trades. The slump also highlighted the risks of buying on the dip. Many bullish crypto investors tried to find the bottom by buying during major declines. While this strategy has worked among many assets before, it did not work for cryptos this year.
Moreover, the decline showed how bubbles form and how they burst. As the crypto industry grew, so did the number of people interested in the industry. The herd-like mentality led to a sharp increase in price, even though many investors did not have a good understanding of the industry. This was the same thing that happened during the dot-com bubble. Since the dot-com industry flourished then crashed, it seems the volatility of the crypto sector could continue if following a similar trend.
ETH has been among the biggest losers this year. Today, the currency has a market cap of $12 billion, which is lower than the peak market cap of more than $100 billion. On the hourly chart, the price of ETHUSD has declined to 121.34. This price is below the 50-day and 100-day simple moving average while the RSI has moved from the overbought territory to the current 38. As the fundamentals of the currency weaken, it is likely that the price will continue moving lower.