tedwardd

BTC Bubble and Return to the Mean

BITSTAMP:BTCUSD   Bitcoin / U.S. Dollar
I'll be the first person to call myself a Bitcoin bull. I have been daily cost averaging Bitcoin as an investment for a while now, but I am also realistic about the asset and know that no amount of hopium can make what I want happen unless the market wills it to be so. So, with that preface, I give you my projection for the next year. As with all long timeframe projections, this is just an educated guess using historical data. I have no special crystal ball and I don't have any super powers that let me see in to the future.

If you have been trading markets for any length of time, you've probably come across an image often referred to as the "Anatomy of a Bubble" that illustrates the 5 Stages of A bubble. While I don't think Bitcoin is going to completely collapse, all markets experience periods exuberance which lead to this pattern. To illustrate my idea more clearly, I've created this handy infographic to accompany my chart analysis

If we zoom out on the weekly chart, we can see that Bitcoin has been in a nice and clean upward channel since, at least, August 2011. At this scale, each cycle can be clearly seen, each extending above the EQ, sometimes touching but always coming close to, the upper mark of the range. This most recent cycle, began in March 2020 with the global market panic that crashed not just crypto but also legacy markets around the world. By February 2021, Bitcoin had reached the EQ of this trend channel and there it remained, unable to continue, for the next two months, finally losing momentum in May, unable to have a high extend up and reach the EQ for another time. Now look back at the prices one year earlier, in 2019, we see a similar pattern. Price started around halfway between the range lows and the EQ, proceeded up to the EQ where it remained for a couple of months, eventually dropping back down to the range lows... Look again at the pattern for 2020 to present... looks familiar, does it not?

If we assume patterns repeat, at least approximately, we can project forward from where we are today and see what the rest of the year is likely to look like.

As of the time of this writing, prices are below the 0.5 DOW marker and while it's still early in the week, the current weekly candle does not look promising. Unless major support is found in the next couple of days, I expect price will continue to retrace to the 0.382 fib, just as it did back in 2019. From there, I expect we will find support, at least temporarily, a rally from there will lead us back to the golden pocket between 0.618 - 0.65 and if we are unable to break through the infamous 42k boundary and hold it, I fully expect panic will set in for many retail traders and investors which will drive us in to the capitulation and despair phase of the cycle, down to around $20k at the 0.236 and the ATH that was set back in 2017.

As I said in the beginning of my post, I am bullish on Bitcoin from a hyper macro perspective, but it's not a straight line, so buckle your seat belts. The road is about to get even bumpier.
Comment: I realized that I never added a link to the zoomed out, macro view of the weekly chart in the channel:

Comments