One of the big technical themes in crypto this year has been the power of the transition from quiet consolidations to major trends. The obvious example was Bitcoin’s (BTC) quiet range near $6,500 for the July to November period. Once Bitcoin (BTC) left that range to the downside, it lost 40 percent of its value.
We see the same thing about to happen in Bitcoin (BTC) dominance. Figure 1 shows that dominance is making its way above an important Fib number at 53 percent. Bitcoin (BTC) dominance could move to 60 percent if the budding uptrend continues.
We see plenty of technical evidence that sheds light on how a move to 60 percent dominance could occur. Litecoin (LTC), Ethereum (ETH), and Ripple (XRP) could have dramatic drops in percentage terms. If there is another big down leg in crypto, these three coins could lose up to 50 percent of their value.
Let’s start with Litecoin (LTC).
This year we have had success coming up with price targets using the 200-day moving average. Crypto bear market history has seen coins fall 75 percent below their 200-day moving average before bottoming. This worked very well for EOS, and it’s worth noting that we called for a drop to $1.60.
This time, we are applying the theme to Litecoin (LTC). This implies that Litecoin (LTC) could fall from $24 to $15 (Figure 2). That would be a drop of 62 percent.
Looking at Ethereum (ETH) on Bitmex, there is a cluster of support around the $89 level. If ETH does start to break down, the downside price target could be as deep as $48 (Figure 3). Any type of drop like this could be created by the fork on January 18 or panic tax loss selling. As with Litecoin (LTC), there is a technical case for another 50 percent drop.
And then of course, there’s Ripple (XRP). Fibonacci work indicates that a 50 percent drop in value is possible. (Figure 4). Fundamentally, such a drop is easily justified by the fact that Ripple (XRP) is likely a security, not a currency. Ripple (XRP) is just one regulator comment away from serious problems.
If Litecoin (LTC), Ethereum (ETH), and Ripple (XRP) all drop dramatically, that could take just about every coin below Bitcoin (BTC) on the market cap chart down with it. That could send Bitcoin (BTC) dominance much higher.
Bottom Line: It’s scary to think how much the crypto complex can fall relative to Bitcoin. There may be no way for institutions to really hedge against a 50 percent drop in Litecoin (LTC) and Ethereum (ETH). They can try shorting Bitcoin (BTC) or Bitcoin futures, but that may not work if the percentage drop in LTC and ETH is much larger than the percentage drop in Bitcoin (BTC). So, the lower Litecoin (LTC) and Ethereum (ETH) potentially go, the more incentive there will be to sell them for tax loss purposes.
This time of year is truly bizarre because lower prices could bring in more and more sellers. The bigger the tax loss, the more you can use to offset future gains.