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Anatomy of the Bitcoin Price Pattern

Welcome crypto enthusiasts! I hope you are all having a great weekend, and for those who are celebrating the Labor Day holiday it is a long weekend! What could be better? Right! So, what could be better? A new crypto bull market would be nice! I am not just talking about the three temporary rebounds we have seen over the last 7 months, I am talking about a real deal sustained bull market that will take BTC and other cryptos to new all-time highs. 

So, after bottoming on August 14th at just over $5858 BTC has been trending upward ever since, but is this just another temporary rebound or something more? I would have to say that in my opinion it is just another temporary bounce, my personal feeling is that the crypto markets aren’t quite ready for a new bull market, I believe there needs to be a period of consolidation before the next bull market begins. As I have said before I believe that this correction process is going to take more time, most likely at least a few more months before the market is ready for a real sustained bull market. Honestly, I would love to be wrong, nothing would make me happier than to see new all-time highs soon, but I just don’t feel that it will happen. 

For this week’s chart, I am taking a long-term view of Bitcoin’s price action. The first thing that stuck out to me is how volatile the price action was just before and after the peak in December and how it has been smoothing out ever since. It reminds me of how when you drop a ball at first there is a lot of energy and you get a nice high bounce the first time but then every time the ball contacts the floor it loses energy making each additional bounce smaller and smaller.

In my opinion this BTC price action is very natural, after building up so much energy climbing to nearly $20,000 that energy was transferred to the subsequent fall to $6000. It happened with such energy and momentum that once the price collided with the strong support near $6000 it caused a quick reversal (V bottom) and the energy was transferred to the rebound. Of course, the collision with support caused an energy loss the same as a ball so naturally the rebound did not reach the original height. You can then see that each additional bounce is smaller, again just like a ball. Also notice that on average the daily candles are much shorter now than they were leading up to the peak and for several months afterward. You can also see this reflected in the MACD , the signals are very erratic during December, January and February but then they smooth out as time goes on.

So obviously BTC is not a ball so what would explain this similar reaction. I believe it has to do with market sentiment, after the first quick drop there were many people who were very eager to jump in, especially people who missed the first ride up to $20,000. Their belief was most likely that there would be a quick bounce and BTC would run to new highs over $20,000. In my opinion this is what caused the first very quick "V" bottom recovery, but instead of soaring over $20,000 it failed at just under $12,000 when the buying dried up and dropped back down near $6000 again. For the next bounce there were still plenty of buyers near $6000 but fewer people believing that BTC was going to recover quickly and soar so the bounce was not as quick, and buyers dried up at even a lower price, this time BTC never even made it above $10,000. I think the same thing happened for each additional bounce, each time there were buyers down near $6000 but fewer and fewer people willing to jump in and buy BTC at higher prices, causing the bounces to get smaller and smaller. At this point, I just don’t think there are enough people (buyers) who believe that BTC is ready to run to new all-time highs. In order to sustain a true bull market there are going to have to be buyers who are willing to buy BTC over $10,000 and then over $15,000. Until that occurs I think the market will be controlled mainly by traders looking to buy low near $6000 and sell higher at the first sign of weakness. The other unknown is what affect the BTC futures and institutional investors are having on the markets, my guess is that they help dampen the volatility somewhat.

My point with all of this is that I believe we still have a few bounces left to go before the crypto markets climb their way to new all-time highs. Of course, as I said I could be wrong, so I will be watching BTC and other cryptocurrencies closely for clues that would convince me that a new bull market has begun. The first clue I will be watching for will be if BTC can push above the daily 200 SMA , it has been below it since the middle of March. If we go back and look at the 2013 to 2016 boom and correction cycle you will see that it was only after BTC was able to push and stay above the 200 SMA that it was able to enter a sustained bull market. I believe this will be the strongest clue that the correction is over, and a new bull market is just around the corner. Other clues I will be watching for are growing volumes, since bottoming in June the volume has increased each month since which is a good start. I will also be watching for back to back monthly closes higher than the last, that has also not happened since the peak in December. 

I should also add that I am not totally convinced that BTC has hit bottom, although BTC has bounced convincingly several times from just under $6000 the possibility still exists that it could go lower. As you can see up to this point the bounces keep getting smaller, so could BTC get to a point where it does not bounce and just rolls over and heads lower? I think it is a possibility, in my last published chart I showed BTC forming a descending triangle which is a bearish continuation pattern. It is possible the uptrend we are witnessing now could reverse and this time the price not bounce as it has in the past but instead break down lower creating a new low for the year. As I have said I believe that this correction process still has a way to go but If BTC was to drop substantially below $6000 then my opinion would be that we are in store for a very long wait for the next bull market.

Anyway, I hate to end on a negative note but that's all I have for now, I appreciate you checking out my charts and analysis.

I have also published this on TradingView, so for anyone who wants to get a better look at the charts here is the link.

Until the next blog post, take care!


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