Past performance is no guarantee of future results, but when history repeats it can be difficult to ignore the potential implications.
Such is the case with price chart of ether, the ethereum network’s native cryptocurrency.
Since Sept. 2018, the price chart of the world’s second largest cryptocurrency has mimicked the market structure of bitcoin’s bear market bottom in 2015.
In the world of technical analysis and trading, similar and repeating market structures are known as fractals, similar to the recurring patterns found in art, nature and mathematics.
The two emotions of fear and greed are what drives price action in a market, so repeated investor behavior yielding similar results may not be that far-fetched, especially when those emotions create fractals in the cryptocurrency market.
BTC/USD vs. ETH/BTC comparison
The above chart depicts the eerie fractal from BTC’s bottom in 2015 (upper frame) playing out on the ETH/BTC chart (lower frame).
Needless the say, the structure of the two charts are nearly identical, with only minor discrepancies.
As can be seen, going from left to right, both assets printed a “V” shaped bottom followed by a minor rally and subsequent bearish trendline breakdown. After the trendline break, both markets endured a period of abnormally low volatility compared to their typically erratic nature.
As the old saying in investing goes: “never short a dull market”. These periods are commonly found to be when markets store – or accumulate – energy before a significant advance.
Larger players also tend to lose interest in boring markets, leaving just the smaller retail traders who, in large part, favor long over short positions, in turn creating a market that favors the bulls.
Following the dull market, both BTC and ETH produced a minor rally followed by another sell-off, as depicted by the blue downward curved lines.
Both markets quickly rebounded in a curved bottom fashion, driving the price to a “V” shaped top, lastly followed by bullish continuation from the previous rebound.
Indeed, the similarities are striking, but there are differences between the two that may play spoilsport to the fractal actually playing out.
According to stock market legend Richard D. Wyckoff, price charts abide by a law of “cause and effect.”
In other words, the longer the trend stays sideways A.K.A. “the cause,” the more powerful and long lasting the subsequent trend, A.K.A. “the effect” – another reason shorting a dull market can be risky.
This is particularly relevant here since the cause for BTC’s 2015 bottom was nearly an entire year long, whereas ETH’s cause is so far just over three months.
Taking that into account, it could be argued that a long-term uptrend would be an unlikely result if ETH/BTC keeps advancing since its cause is considerably smaller than BTC’s was.
A bullish effect is still possible, though – just perhaps one that is more proportional to its 3-month cause.
Disclosure: The author holds BTC, AST, REQ, OMG, FUEL, 1st and AMP at the time of writing.
merging railway image via Shutterstock