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Insights > Technical analysis > Panic sell on the cryptocurrency market, how to successfully manage your portfolio?

Panic sell on the cryptocurrency market, how to successfully manage your portfolio?

26 May 2021

temps de lecture 6 minutes

avatar-auteurJulien Moretto


What a week on the cryptocurrency market! Once again, everyone was surprised by the sudden drop, which came to put a chill on the euphoria that had been prevailing on the market for weeks. Over the course of a week, Bitcoin has dropped only 6.5% to trade around €32,500 ($40,000) on May 26, but because a price rebound has been taking place since last Monday. The price lost up to 30% on May 19 alone and up to 53% since its all-time high of $64,800. A percentage drop that it never reached during the previous bull market corrections in 2017.

Is it already the end of the bull market or is it a bear trap? In fact, this is the wrong question to ask in order to act in the best way in such a market context. No one can answer that question at this point. The best thing to do is to project different scenarios that could happen in the next few days and know how you are going to react based on what the price is doing. You need to have a plan and stick to it. We cover the different possible scenarios in our video and later in this article with our detailed analysis. We’ll note in passing that altcoins have fallen more sharply than Bitcoin and none have been spared. A few rare assets are holding up a little better than average, with strong rebounds, such as Cardano (ADA).

In terms of context, it is mainly the liquidations of investors using leverage that are responsible for this huge drop. By borrowing money on certain platforms to bet on the rise, many were liquidated: by losing more than their initial stake, the platforms proceed to the forced sale of their positions, causing a chain reaction and the liquidation of other investors. As for the news, we will not dwell here on Elon Musk’s tweets, which change in tone every day. On the other hand, the various measures taken by China to limit the use of digital assets in the country have surely contributed to temporarily weakening the market.

Many investors are stunned following last week’s violent decline. This is an opportunity to go back to the fundamentals to always keep in mind in a volatile and risky market like cryptocurrencies. First of all, define your investment horizon: if it is long term, then step back and manage your emotions. It’s true that the drop was brutal, but in the long term, there is no reason to believe that the bull market is over. Bitcoin was still only $10,000 last October. If your investment horizon is shorter term and you want to trade your portfolio more often, then stay humble and think about managing your risk. Taking partial profits in key areas during strong market rallies is never a mistake. It allows you to be more confident later on when the market goes down, and to have capital available to buy on days like this May 19, 2021.

  • According to CoinGecko, market capitalization falls to $1800 billion from $2000 billion last week.
  • Bitcoin’s dominance rises to 42% market share from 38% last week.
  • The best performance of the top 50 is attributed to Celsius Network (CEL) with +0.3% over one week.

We invite you to discover our video analysis (in french and dated from dated May 25):

Bitcoin (BTC)

The Coinhouse recommendation :
Partial profit taking on zone

  • After the drops of Wednesday, May 19 and Sunday, May 23, Bitcoin is rebounding to trade around €32,500 ($40,000) on May 26. At this point, the bounce we are seeing could only be a technical one, as the decline has been so strong. There is a very important technical selling area where a set of signals are converging: the one located between €36,000 and €40,800 (44,000 and $50,000). Taking partial profits in this area is important, especially if you think you are overexposed to the market or if you bought in the $30,000 area. This is because sellers will likely try to reject the price again on the downside when the price enters this area, and you need to be able to handle a new downside phase. Three scenarios are likely.
  • The first scenario, the most bearish one: the price is rejected by the selling zone and will make a new low. In this case, the panic will become important again on the market. However, the €22,000/€22,800 ($27,000/$28,000) price zone could be an interesting area to buy in case the price reacts upwards when it hits it. In such a scenario, it is therefore important that you have taken profits beforehand in order to be able to buy back at that time.
  • The second scenario, rather neutral/bullish: the price is rejected by the sell zone but then makes a low higher than last week’s low at $30,000. If this price action takes place, then buyers will be trying to reverse the trend to get back into a clear uptrend. We will revisit the price areas to buy if this scenario takes place.
  • The third scenario, the most bullish one: the price consolidates under the sell zone, then finally by breaking it directly upwards. In this case, it will be necessary to buy on a confirmed bullish break of $50,000. Regardless of the scenario, it is highly recommended to take partial profits between $44,000 and $50,000 in order to have a better risk management.

Ethereum (ETH)

The Coinhouse recommendation :
Partial profit taking on zone

  • Ethereum (ETH) displays a similar scenario to Bitcoin but with more volatility: corrections and rebounds are more pronounced. The asset is still correcting by 16% this week despite the rebound and is back to trading around €2,280 ($2,800) on May 26. As for Bitcoin, there is an important area where the downtrend could resume if we are only in a technical rebound: the one located between $3000 and $3350. It is highly recommended to take partial profits in this area. We are already on a rebound of around 60% on Ethereum from its low of Sunday, May 23. In the case of the most bearish scenario: the price would make a new low in the next few days, and we should then consider the €980 / €1,140 ($1,200 / $1,400) area as a potential buyback zone. In the case of a more bullish scenario, the price would re-enter the channel drawn on the chart above and gradually resume an uptrend.

Litecoin (LTC)

The Coinhouse recommendation :
Wait

  • Litecoin (LTC) has suffered more of the downside and is still losing 33% this week despite the start of the rebound. The asset is trading around €160 ($200) on May 26. The trend is more downgraded because unlike Bitcoin and Ethereum, Litecoin has failed to hold these large Fibonacci retracement levels of the entire rise since March 2020. As such, we are not currently taking positions in Litecoin as the market still remains uncertain. Those who own litecoin and would like to resell it have two potentially interesting price areas: a first polarity area (former supports) located between $215 and $230 and a larger one located between $265 and $300 and corresponding to retracement levels of the decline since May 10. There are still a lot of technical levels to be recovered in order for Litecoin to resume a clear uptrend.

Tops & flops of the week (top 50 marketcap)


Tops

1- Celsius Network (CEL) : +0,3%
2- Bitcoin (BTC): -6,5%
3- Crypto.com Coin (CRO): -9,4%


Flops

1- Terra (LUNA) : -53%
2- OKB : -45%
3- Kusama (KSM): -41%

All information in this article is provided for informational purposes only, although it has been compiled from reputable and reliable sources. It does not constitute an offer to buy or sell digital assets, nor does it constitute an offer to provide services in respect of digital assets, nor does it constitute advice, inducement or recommendation to deal in such digital assets. It constitutes simple information that is under the user’s absolute control. We inform you that if you choose to invest in digital assets, you must be aware of our general terms and conditions of sale (https://bit.ly/2FGW2ek) and accept the various risks listed and defined on our legal warning page (https://bit.ly/3c4sQKc)

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