With plenty of retail and institutional interest, cryptocurrencies like Ethereum (CCC:ETH-USD) have gone absolutely ballistic. In fact, over the last few weeks, Ethereum raced from a Dec. 23 low of $618.18 to a recent high of $1,667. Analysts say it could jump to $2,500 this year.
While I agree with that potential target, wait for the overdue pullback in Ethereum before jumping in. At the moment, ETH has become technically over-extended on relative strength (RSI), moving average convergence divergence (MACD) and on the Williams Percent Range (Williams’ %R).
Historically, each time these indicators align in overbought territory, the coin pivots lower. In the near term, avoid Ethereum and wait for an overdue pullback.
Going Forward, There are Plenty of Catalysts
For one, investors are excited about the launch of ETH futures on the Chicago Mercantile Exchange.
According to JP Morgan, as quoted by Reuters, “The listing of Ethereum futures on a regulated exchange should serve to enhance the crypto market structure by allowing investors to gain exposure to the second-most important cryptocurrency as a diversifier to Bitcoin.”
Ethereum is rallying as decentralized finance (DeFi) gains traction, as well. Analysts believe decentralized finance could change the way we do financial transactions with Ethereum validators, which can make sure financial records and save correctly, smart contracts, and decentralized applications.
Three, Mike Novogratz’s Galaxy Digital is bullish, noting that, “Investing in ETH is similar to investing in a basket of early-stage, high growth technology stocks that provides investors exposure to the explosion of next-gen smart contracts and decentralized applications.”
We Can’t Forget About Institutional Interest
Institutions are foaming at the mouth over the potential of cryptocurrencies. Granted, Treasury Secretary Janet Yellen negatively impacted digital currencies, noting they’re used mainly for illicit financing. However, that hasn’t stopped institutions from jumping on the bandwagon. In fact, it’s part of the reason Ethereum is sitting at all-time highs.
BlackRock just said two of its funds can now invest in cryptocurrencies, for example. The BlackRock Strategic Income Opportunities Fund and the BlackRock Global Allocation fund are only allowed to trade cash-settled bitcoin futures. BlackRock also said demand for Bitcoin is going to be a part of the asset suite for investors for quite some time.
Paul Tudor Jones and Mutual Life Insurance are turning heads, buying cryptocurrencies. Guggenheim Investments’ Scott Minerd say Bitcoin (CCC:BTC-USD) could be worth up to $400,000 at some point. Bridgewater’s Ray Dalio may invest, calling Bitcoin “one hell of an invention.”
That’s all creating a great deal of excitement for cryptocurrencies, such as Ethereum.
Be Cautious of Potential Pullbacks
While these are all substantial reasons to get bullish on Ethereum, wait for confirmation of upside before taking a position. At the moment, ETH appears to be technically overbought on RSI, MACD, and Williams’ %R. Plus, remember that parabolic rallies, as we’ve seen with Ethereum are not sustainable.
Sure, it’s exciting to see retail and institutional investors piling in. However, no asset has ever, or will ever just go up in a straight line without pulling back.
The last time we saw a big rally in ETH, things didn’t end well. I’m sure you remember watching it plummet from $1,220 in 2018 to a low of $108.37.
While we may not see a near-term pullback that severe, just be cautious. A drop in overdue from ridiculous overbought conditions.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article. A contributor to InvestorPlace.com, Ian Cooper has been analyzing stocks and options for web-based advisories since 1999.