Hello everyone! Yesterday I published an analysis on Ethereum and how I believe it could go to 1420$ - 0.066 BTC and top there, and so far, it has done so. So today, I'd like to analyze Bitcoin's price action and go through several important charts to get an idea of where it could be headed.
The first three are about how oversold Bitcoin got by using the weekly RSI in different forms. In Tradingview, one can change the inputs used to calculate Relative Strength Index, and on this occasion, I used the lows, the close, and an average of the high, low, and close. Looking at the first one, we can see that the RSI has gotten this low five times, and BTC bottomed on all five. When looking at the second one, this is the most oversold BTC has ever gotten. And when looking at the third one, we can see that it got as oversold as it did back in December 2018 at the depths of the bear market. All these are significant indications that either a bottom is in or a major bounce is coming.
In the next two, we have BTCUSD divided by the M2 money supply in the US and the Total crypto market cap (stablecoins excluded) divided by the stablecoin supply. I chose these two charts because even though they are not perfect, they give us a better idea of how the market would be doing if the money supply wasn't expanding, as well as how the market is doing based on the amount of cash that is sitting in it. For example, many expect/expected BTC to get to 12-14k at some point, yet based on the M2 money supply, the price already got there. The market also got 2.5x times cheaper based on the stablecoin supply than in July 2021 before proceeding to more than double.
Another nice chart of an S&P500 fractal also potentially shows that Bitcoin might have bottomed and is ready to go. Essentially, the SPX had a massive rally in the 1990s, fell sharply in the early 2000s, formed a triple bottom, bounced slowly, and made new highs in 2007; however, it didn't manage to close above the 2000 ATHs. Then in 2008-2009, it fell even more sharply than in 2000-2003, yet its recovery was swift, and that bull market could still be on. Bitcoin so far has done almost the same, but with one key difference and one fundamental explanation about why it was different. For the fractal to be more similar, it would have bottomed around 22-24k and not 17.7-18.7k. This difference exists because, in 2008-2009, the Fed stepped in to save the system while there was no Fed to bail out Terra, Celsius, 3AC, etc. Of course, the S&P is also much more liquid and stable than Bitcoin, which also played a role, along with the fact that the 20-24k area had no real support.
The final bullish chart I'd like to share is that of the actual Bitcoin dominance (excluding stablecoins). This one seems to have topped, which is great for the crypto market, as Bitcoin Dominance or BTCD going down tends to correlate with periods of bullishness. That's because investors are willing to take more risks by betting even on small crypto assets.
So far, based on all the above, someone could say that this is it. Bitcoin has bottomed, and we are going much, much higher. And although based on several other data points like on-chain metrics, sentiment indicators, and so on, this could be true, there are still a few things that we need to consider. Below we can see that it is still below its 200 weekly moving average and hasn't tested the 300 one like it did in March 2020. This is the longest time it has spent under its 200 WMA and the first time it got rejected on it. A 75% correction could be more than enough for a bottom, but historically we have seen much larger drawdowns during proper bear markets. We must remember that the Fed hasn't pivoted yet and that governments, regulators, and central banks are mainly against us and not with us. The last time the Fed raised rates to 2.5%, Bitcoin crashed to 3k, so why wouldn't it fall to 12-14k if the Fed goes to 3-3.5% like they claim they will?
In the two charts below, we can see that there is no real support for BTC until 12-14k. The fact that the market bottomed at 17700 and didn't sweep the Dec 2020 low across all exchanges is somewhat problematic. That's because a double bottom has formed and is waiting to be broken. The thing is that there is another little double bottom at 18700 waiting to be broken, making me uneasy. As markets tend to find support in some high-volume areas, BTC currently has support at 19k, yet this area has nowhere near the volume traded below 12k. Essentially someone could see the area from 9.5k and below as a magnet pulling the price and that once the price touches it, it repels it. Therefore we can't ignore the probability that the market might head towards that area if it falls below 20k again.
Another thing that is just a thought of mine that might not have any substance is that BTC might need to test the 400 WMA before we can see its bottom. In 2018 it bottomed right at the 200 WMA, and in 2020 at the 300 WMA. Maybe this time, it will bottom on the 400 WMA.
Finally, I'd like to look at the gaps in CME and BITO, as I think they are essential to study. First, I'd like to start with CME gaps, as for the first time in a while, there are only significant gaps to the upside, not the downside. All the gaps to the downside have been partially filled, which makes them way less 'effective' as gaps. By that, I mean that they are attracting the price a lot less. Usually, gaps tend to be filled, and the more gaps on one side, the more likely the market will want to move in that direction to fill them, no matter how long that takes. The solid lines are for ones that 'need' to be tested or have been tested, and dashed lines are for those partially tested. The one at 18k was the last important one in which the price hadn't traded in, and now that it has, it is more likely that the market has bottomed.
On shorter timeframes, the price traded slightly into a gap right before the Friday close; it currently looks like the CME open will be right into that gap. This makes the entire gap likely to be filled soon after the open. Once this is done, if the market starts trading above 22k, more upside will likely follow.
The BITO gaps are fascinating, as they usually coincide with the CME gaps. Still, they actually have more juice because BITO is usually traded during the US hours, and the US trading hours matter the most as most volume occurs during them. Many of these gaps act as support or resistance, and that's why they are helpful for more than determining the direction. As seen in the charts below, there are currently no gaps to the downside but many massive ones to the upside. Although this range looks similar to the prior one, the big difference is that the price made three lower lows, and each low swept the one before it and bounced higher, so there are no double bottoms to be broken here. The critical question here is what happens once all the gaps in this range get filled, as it could be a sign that we are now ready yet for another drop. I expect tomorrow's open will be bumpy, especially if we get a gap above a gap, as these double gaps eventually tend to get filled faster than single ones.
In conclusion, the market looks much better than it did in May-June. There is a high likelihood of the move from 28k down to 17k to have been the actual capitulation. The volume was extremely high, and the sentiment hit an ATL. It is tough for me to imagine that the market would easily break above 28k in the next few months, but it isn't improbable. I remain cautious as I believe this range could be another redistribution phase that ends by trapping bulls by a move towards 22-24k and then dumping lower. In the short to medium term, the bullish factors seem much stronger than the bearish ones, yet we can't ignore that a significant global crisis is around the corner and could severely hit the crypto market. For now, there is plenty of liquidity in and out of the crypto market that could take Bitcoin up to 28-37k; without that meaning new ATHs are around the corner. Based on previous cycles, it is probable that the bottom is in, though it feels unlikely that with the current setup, the market has simply bottomed and will start rallying hard. I think a lot will be determined on whether the market reclaims 28-30k and how it does that. If it manages to get above it quickly with data supporting higher prices, then new ATHs will be around the corner, and nothing will stop Bitcoin's advance.
The first three are about how oversold Bitcoin got by using the weekly RSI in different forms. In Tradingview, one can change the inputs used to calculate Relative Strength Index, and on this occasion, I used the lows, the close, and an average of the high, low, and close. Looking at the first one, we can see that the RSI has gotten this low five times, and BTC bottomed on all five. When looking at the second one, this is the most oversold BTC has ever gotten. And when looking at the third one, we can see that it got as oversold as it did back in December 2018 at the depths of the bear market. All these are significant indications that either a bottom is in or a major bounce is coming.
In the next two, we have BTCUSD divided by the M2 money supply in the US and the Total crypto market cap (stablecoins excluded) divided by the stablecoin supply. I chose these two charts because even though they are not perfect, they give us a better idea of how the market would be doing if the money supply wasn't expanding, as well as how the market is doing based on the amount of cash that is sitting in it. For example, many expect/expected BTC to get to 12-14k at some point, yet based on the M2 money supply, the price already got there. The market also got 2.5x times cheaper based on the stablecoin supply than in July 2021 before proceeding to more than double.
Another nice chart of an S&P500 fractal also potentially shows that Bitcoin might have bottomed and is ready to go. Essentially, the SPX had a massive rally in the 1990s, fell sharply in the early 2000s, formed a triple bottom, bounced slowly, and made new highs in 2007; however, it didn't manage to close above the 2000 ATHs. Then in 2008-2009, it fell even more sharply than in 2000-2003, yet its recovery was swift, and that bull market could still be on. Bitcoin so far has done almost the same, but with one key difference and one fundamental explanation about why it was different. For the fractal to be more similar, it would have bottomed around 22-24k and not 17.7-18.7k. This difference exists because, in 2008-2009, the Fed stepped in to save the system while there was no Fed to bail out Terra, Celsius, 3AC, etc. Of course, the S&P is also much more liquid and stable than Bitcoin, which also played a role, along with the fact that the 20-24k area had no real support.
The final bullish chart I'd like to share is that of the actual Bitcoin dominance (excluding stablecoins). This one seems to have topped, which is great for the crypto market, as Bitcoin Dominance or BTCD going down tends to correlate with periods of bullishness. That's because investors are willing to take more risks by betting even on small crypto assets.
So far, based on all the above, someone could say that this is it. Bitcoin has bottomed, and we are going much, much higher. And although based on several other data points like on-chain metrics, sentiment indicators, and so on, this could be true, there are still a few things that we need to consider. Below we can see that it is still below its 200 weekly moving average and hasn't tested the 300 one like it did in March 2020. This is the longest time it has spent under its 200 WMA and the first time it got rejected on it. A 75% correction could be more than enough for a bottom, but historically we have seen much larger drawdowns during proper bear markets. We must remember that the Fed hasn't pivoted yet and that governments, regulators, and central banks are mainly against us and not with us. The last time the Fed raised rates to 2.5%, Bitcoin crashed to 3k, so why wouldn't it fall to 12-14k if the Fed goes to 3-3.5% like they claim they will?
In the two charts below, we can see that there is no real support for BTC until 12-14k. The fact that the market bottomed at 17700 and didn't sweep the Dec 2020 low across all exchanges is somewhat problematic. That's because a double bottom has formed and is waiting to be broken. The thing is that there is another little double bottom at 18700 waiting to be broken, making me uneasy. As markets tend to find support in some high-volume areas, BTC currently has support at 19k, yet this area has nowhere near the volume traded below 12k. Essentially someone could see the area from 9.5k and below as a magnet pulling the price and that once the price touches it, it repels it. Therefore we can't ignore the probability that the market might head towards that area if it falls below 20k again.
Another thing that is just a thought of mine that might not have any substance is that BTC might need to test the 400 WMA before we can see its bottom. In 2018 it bottomed right at the 200 WMA, and in 2020 at the 300 WMA. Maybe this time, it will bottom on the 400 WMA.
Finally, I'd like to look at the gaps in CME and BITO, as I think they are essential to study. First, I'd like to start with CME gaps, as for the first time in a while, there are only significant gaps to the upside, not the downside. All the gaps to the downside have been partially filled, which makes them way less 'effective' as gaps. By that, I mean that they are attracting the price a lot less. Usually, gaps tend to be filled, and the more gaps on one side, the more likely the market will want to move in that direction to fill them, no matter how long that takes. The solid lines are for ones that 'need' to be tested or have been tested, and dashed lines are for those partially tested. The one at 18k was the last important one in which the price hadn't traded in, and now that it has, it is more likely that the market has bottomed.
On shorter timeframes, the price traded slightly into a gap right before the Friday close; it currently looks like the CME open will be right into that gap. This makes the entire gap likely to be filled soon after the open. Once this is done, if the market starts trading above 22k, more upside will likely follow.
The BITO gaps are fascinating, as they usually coincide with the CME gaps. Still, they actually have more juice because BITO is usually traded during the US hours, and the US trading hours matter the most as most volume occurs during them. Many of these gaps act as support or resistance, and that's why they are helpful for more than determining the direction. As seen in the charts below, there are currently no gaps to the downside but many massive ones to the upside. Although this range looks similar to the prior one, the big difference is that the price made three lower lows, and each low swept the one before it and bounced higher, so there are no double bottoms to be broken here. The critical question here is what happens once all the gaps in this range get filled, as it could be a sign that we are now ready yet for another drop. I expect tomorrow's open will be bumpy, especially if we get a gap above a gap, as these double gaps eventually tend to get filled faster than single ones.
In conclusion, the market looks much better than it did in May-June. There is a high likelihood of the move from 28k down to 17k to have been the actual capitulation. The volume was extremely high, and the sentiment hit an ATL. It is tough for me to imagine that the market would easily break above 28k in the next few months, but it isn't improbable. I remain cautious as I believe this range could be another redistribution phase that ends by trapping bulls by a move towards 22-24k and then dumping lower. In the short to medium term, the bullish factors seem much stronger than the bearish ones, yet we can't ignore that a significant global crisis is around the corner and could severely hit the crypto market. For now, there is plenty of liquidity in and out of the crypto market that could take Bitcoin up to 28-37k; without that meaning new ATHs are around the corner. Based on previous cycles, it is probable that the bottom is in, though it feels unlikely that with the current setup, the market has simply bottomed and will start rallying hard. I think a lot will be determined on whether the market reclaims 28-30k and how it does that. If it manages to get above it quickly with data supporting higher prices, then new ATHs will be around the corner, and nothing will stop Bitcoin's advance.
