Crypto Rebound Incoming?

by Alex Benfield
By Alex Benfield

Could the most recent price correction have been caused by tax-related selling?

That's an idea my colleague Marija Matić brought up in her piece on Monday.

And it makes sense. This past year was huge for most cryptocurrency traders and investors, with many likely raking in higher capital gains than ever before.

While that's amazing ... it also translates to a big tax bill as well. Over the past few weeks, the market has seen increased selling pressure as some investors found themselves needing to liquidate assets to pay their capital gains taxes.

Well, Tax Day has now come and gone. In the days since, we've seen both Bitcoin (BTC, Tech/Adoption Grade "A-") and Ethereum (ETH, Tech/Adoption Grade "A") reclaim their support levels at $40,000 and $3,000, respectively. If the broad market can regain the momentum it had just a few short weeks ago, we can likely conclude that tax-related selling was the culprit of the recent pullback.

We will watch out to see if Bitcoin and Ethereum can top the early April highs, which would solidify a streak of higher highs and higher lows. If that happens, we'll look to see if the market has shifted from neutral back to bullish.

However, there's still plenty of ground to cover in between those levels. The next major resistance level for BTC is $42,000. Bitcoin will need to regain that level and hold above it in the coming days if a larger rally is coming.

Here's BTC in U.S. dollar terms via Coinbase Global (COIN):

 

When it comes to Ethereum, we can expect volatility in the price of ETH until it reclaims the $3,200 level and makes a run for $3,400. If ETH breaks through the resistance area between $3,200 and $3,400, it should attempt to set a higher high than the $3,600 mark from early April.

The level to watch on the downside is about $2,885, or Monday's low. As long as ETH holds above that for the rest of the week, then a rebound is in play. Otherwise, expect more sideways trading.

Here's ETH in U.S. dollar terms via Coinbase:

 

Notable News, Notes and Tweets

 

What's Next

Right now, the market is holding right near important support/resistance levels, apparently undecided about the short-term direction. Until either Bitcoin or Ethereum breaks out in a significant way, we'll continue to see volatility and sideways trading, especially in the altcoin market.

Now that the tax-related selling narrative has expired, it'll be interesting to see how the crypto market reacts in the coming days. Obviously macro conditions haven't improved, and the Fed remains hawkish. If crypto were to rally and set higher local highs in the coming weeks, it would show some major strength and would come as a surprise to many institutional traders.

It's too early to make a prediction just yet. But the long-term picture remains as clear as ever: Crypto adoption continues to trend higher all around the world, and there's still plenty of money sitting on the sidelines waiting to get involved.

The only question that remains is when those institutional players will make the leap.

But while you wait for that to happen, you should be looking for every opportunity to make money, even in this sideways market. And with decentralized finance (DeFi), there are plenty of strategies to do just that.

Strategies like the one my colleague Chris Coney explains in his DeFi MasterClass. Not only does Chris show you how you can beat rapidly rising inflation and earn 134x more than what the average money market account offers ... he also breaks down the mechanics behind what makes these opportunities possible in the world of DeFi.

Check it out yourself for more information.

Best,

Alex

About the Crypto Analyst

Alex has been actively researching and investing in cryptocurrencies since 2017. He contributes research and reports to several Weiss crypto publications, with a primary focus on helping to create crypto trading strategies.

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