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'We haven't seen all the weakness in crypto yet': A technical analyst breaks down why the ongoing crypto slump is bound to continue for weeks ahead — and shares why bitcoin is the safest cryptocurrency to own at the moment, despite the risk it falls to $20,000

A trader rubs his face while working on the floor of the New York Stock ExchangeMario Tama/Getty Images

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Over the last couple of months cryptocurrencies have seen their worst sell-off since the end of 2017.

Since hitting its April highs, bitcoin has shed more than 50% of its value. 

Bitcoin YTD PriceMarkets Insider

The same goes for ether, and just about every other cryptocurrency.

ETH YTD PriceMarkets Insider

And the bleeding isn't likely to stop anytime soon, according to Julius De Kempenaer, a senior technical analyst at StockCharts.com

De Kempenaer is the creator of the Relative Rotational Graph (RRG), which tracks trends in asset prices on two axes: momentum and relative strength. Placed on these two axes, prices tend to follow a roughly clockwise, circular pattern, and usually cross through four sections of the graph: improving, leading, weakening, and lagging. At the center of the graph, where the axes cross, is a benchmark asset to base relative performance off of.

De Kempenaer uses the tool to gauge the performance of cryptocurrencies and predict what they might do in the future. The tool takes into account only technical indicators, not fundamental market forces. In a call with Insider on Wednesday, he shared what he's seeing in the space at the moment.

The worst is yet to come

First, De Kempenaer said that the crypto space generally, relative to the US dollar, would continue to underperform going forward. When assets on the chart are in the yellow weakening quadrant heading toward the red lagging quadrant, as they are below, it doesn't bode well for future price action, he said. The tails on each asset represent a week of prior performance.

Crypto USD RRGStockCharts.com

"I'm afraid we haven't seen all the weakness in crypto yet," De Kempenaer said. "The whole crypto space versus fiat US dollar is weakening, and according to the RRG, which is showing you the relative picture, that's not going to change anytime soon."

But if one has to be invested in a cryptocurrency, De Kempenaer said, then bitcoin is the safest at the moment — not including stablecoins, which are tied to the price of fiat currencies. Tether, for example, mirrors the price of the US dollar. 

De Kempenaer is confident in bitcoin due to what he sees in the graph below. It shows a slew of different cryptocurrencies, including ether, litecoin, and dogecoin, underperforming in terms of momentum and relative strength compared to bitcoin. 

RRG Crypto BTCStockCharts.com

He said this trend of the rest of crypto underperforming relative to bitcoin would continue.

"This is a weekly RRG, so this is looking at relatively long-term trends. These tails don't change around very easily, very rapidly. So I think this is going to hold for a couple of weeks, at least."

This isn't to say that De Kempenaer necessarily likes bitcoin right now. He's watching for it to meaningfully and sharply break the $30,000 barrier (it has done so briefly already, but not sharply enough, De Kempenaer said). If a sharp drop below the $30,000 level occurs, he believes with a high level of confidence that it will drop to $20,000 per coin due to negative downward momentum.

De Kempenaer pinpoints $20,000 because it is a prior support level, or an old high.

BTC price chartStockCharts.com

One reason De Kempenaer isn't bullish on bitcoin is because of its trading volume patterns. When its price spikes, trading volume drops. When its price drops, trading volumes increase. This is a bearish pattern, he said, because it shows greater demand to sell than to buy. Trading volume is illustrated by the bar chart underneath the price chart in the above graph.

"[When volume] is picking up on the rallies and retracting on the declines, that's people accumulating a position. That's not the case. People are getting rid of positions," De Kempenaer said. "All these people, I don't know where they bought, but they are willing to accept a lower price to sell. And the buyers, they don't have to overbid. They don't have to push the price higher to buy what they want to buy."

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