Crypto is Crashing (WhatTo Do)

Don't chase falling knives

May 01, 2024

1,061 Words | 4 Min 25 Sec Read

Welcome to another issue of Passionate Income.

Today we’ll be discussing the recent crypto crash.

In particular, how much lower it could go, medium term outlook, and whether or not you should consider "buying the dip."

Let’s dive in.

This issue is sponsored by us - Passionate Income!

Inflation battering your budget?

Wish you could travel more?

At 2:00pm EST tomorrow - Thursday May 2nd - we at Passionate Income will be holding a live training on an exciting side hustle that can generate an extra $2,000+ USD per month in just 2 hours / day.

Click below to join us live!

This content is intended for informational and entertainment purposes. Nothing here should be considered financial advice. We are not financial advisors. Crypto investing is high risk and could lead to you losing 100% of your capital.

In our issue from one week ago we checked in to cover what was going on in the crypto market and discuss the recent weakness we've seen.

Since then the market has crashed, with Bitcoin clearly breaking it's uptrend while testing a key support level at $57,000. A level that, if breached on a daily (and especially weekly) closing basis, could signal a multi-month correction that could take it and the market much lower.

Source: TradingView

So where do we go from here?

First, understand we're sitting at what's called ​Critical Support​.

As you can see from the graphic above, we punched through $57,000 in late February and retested it (the thin red line from early March) before climbing to the new all-time high around March 12th.

The reason this matters is because past price action shows there were a lot of buyers at this level, preventing the price from dropping even further.

In addition, the green boxes you see the image below represent order blocks. These are basically blocks of pending orders that - if the price drops to that level - will trigger a spur of buying automatically (which, in turns, acts as another level of support).

Last, the sideways curving red line you see at the bottom right of the image above represents the 200 Day ​Exponential Moving Average​. Generally speaking, crossing below this line indicates we're in for a prolonged downtrend.

But as you can see, we're still well above the red curving line (200 Day EMA).

Point being, while things look ugly, there is hope.

However, if we start to see Bitcoin close daily candles below $57,000, and/or close below the 200 Day EMA, it's likely we're going much lower.

So the question becomes: What kind of investor are you?

According to Erik Krown (whose ​YouTube channel​ we recommended in our last video), Bitcoin's current Cost of Production is above $70,000 right now.

The reason this matters is because historical patterns show it's extremely rare for Bitcoin to spend a long period of time below it's Cost of Production.

With that said, given Bitcoin launched in 2009, the overwhelming majority of its history and price action was against the backdrop of a easy financial conditions, a growing stock market and 0% interest rates

Fast forward to today and interest rates and inflation are at multi-decade highs, while the stock market seems to have topped and being rolling over.

Meaning, while certain trends may have held true in the past, past performance does not guarantee future results.

If you're a long-term investor and/or Dollar Cost Average investor, odds are you're not going to change your strategy much (if at all).

While the market is scary right now, current prices will likely prove to be a "value area" on a more long-term basis.

With that said, if you're a degen memecoin gambler or day trader, understand current price action is extremely high risk.

Bitcoin is being pulled toward $57,000 like a magnet, and if it breaks through, the next levels of support at $52,200, $47,000 and $40,000 flat.

Along the same lines, the total market cap of everything minus Bitcoin and Ethereum (known as Total 3) has another 6.7% to fall before it hits support at the $560B level.

And because of that, it's likely alt coins will go lower before potentially bottoming out.

In conclusion, the name of the game right now is patience.

Generally speaking, the consensus among experienced traders on Twitter is that we'll go lower / crab sideways through the summer.

Which means another 3-4 months of downward / boring price action (and few areas of opportunity unless you're a highly experienced day trader).

The good news, which we touched upon a week ago, is that if this scenario plays out, you have another 3-4 months to load up on coins at a much lower price before the next leg higher.

As they say in crypto:

"Everyone wants lower prices until they come."

While it's possible you've lost money on the recent crash, if you believe in crypto long-term, you understand downturns are buying opportunities.

Whether it's stocks, gold or crypto, you make profits in investing by buying low and selling high. Unfortunately, buying when things are crashing is against our human bias toward survival. Which is why most short-term traders lose money.

On the flip side, if you can conquer your fear, it's likely the next few months will present an opportunity to get in on projects that were priced much higher just one short month ago.

And remember: If you liked the project when it's price was skyrocketing, you should like it even more when the price drops. And if you don't?

Odds are you didn't actually like the project. You just picked it cause you thought it would keep going up.

💡 Takeaway: The crypto market looks ugly. But given we make money in investing by buying low and selling high, this downward price action represents an opportunity to do just that: Buy low so you can sell high in the future.

🎁 Resources:

Post Of The Day

What'd you think of today's edition?

Reply back with a rating between 1 and 10 to let us know