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ETHUSD’s Huge Surge Comes With Huge Risks

The price of Ethereum – the second biggest cryptocurrency by market capitalization – is currently hovering around $340 a coin, down from as high as $412 earlier this week. Despite the pullback, ETHUSD is still up by over 4100% since the start of 2017, which makes it the most likely candidate to take Bitcoin’s crown.

We recently published “Bitcoin Bubble: Is It “Different This Time?” to show the striking similarities between previous manias an the current crypto craze. In our opinion, Ethereum tells a similar story. Predicting when a bubble is going to burst is extremely difficult, since overly-optimistic sentiment could always lead to an extension. Anyway, let’s see what the Elliott Wave Principle could tell us about ETHUSD’s prospects from now on.
ethusd elliott wave chart 16 june
Truth is, ETHUSD’s uptrend could have ended a month ago near $100. The bulls did not think so and decided to create an extension in wave V. Extended fifth waves are quite normal for the mania phase of the uptrend. They are also the most dangerous, because after such a long and strong advance, people tend to believe the price of the asset in question can never go down and leave their cautiousness in the closet. Alas, no trend lasts forever.

Judging from the 4-hour logarithmic chart above, ETHUSD still has a couple of fifth waves to the north left to make, before the entire five-wave impulsive pattern is over. According to the theory, every impulse is followed by a correction of three waves in the opposite direction. The Wave Principle also states that extended fifth waves are usually fully retraced. In other words, once wave V tops out, the bears should be strong enough to drag Ethereum’s price back to the support area of wave IV between $70 and $40.

Does this mean traders should short ETHUSD right away? Not at all. Keep in mind that this is a logarithmic chart. It eliminates the effect of inflation, making the waves at the beginning of the cycle look bigger, while shrinking the real size of the most recent price swings. In reality, ETHUSD might reach the $600 mark from now on and nearly double from current levels.

This means shorting Ethereum should not even cross your mind. On the other hand, buyers should be aware of the big risks associated with participating in a bubble and never put money they cannot afford to lose on the line.



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