Well, what a difference a day makes! After 19 days of basically, sideways price action bitcoin did what I kind of expected it would do. Late yesterday afternoon bitcoin broke down out of the symmetrical triangle it had been forming since the big drop on May 19th. It didn't have to turn out this way but because the triangle was a bearish symmetrical triangle I knew the probabilities of it breaking down were higher than it breaking out higher. Okay, so where does bitcoin go from here?
Bitcoin Daily Chart
So first I am going to look at the worst-case scenario. Looking at the daily chart you can see bitcoin breaking down out of the triangle, I have also added where I see the measured move target for this breakdown. I don't expect bitcoin to just drop straight down to the target, it will most likely take some time with at least one or two nice bounces in between. If this does indeed play out and bitcoin drops down into the lower $20k region I would for sure consider this bull market over. I would then expect to see bitcoin find a bottom over the next few months, then consolidate for a period of time before moving into the next bull market.
This whole process I would think could take anywhere from 6 months to 18 months. Even though I have looked back at bitcoins price history to try and figure out where it might be going I am not sure just how accurate doing that will be moving forward. Investor demographics are much different now so I imagine that would have to change how bitcoins price behaves. In my opinion, it is possible that we could see much shorter market cycles vs the typical 4 year cycle, possibly even shallower bear markets. The previous two bear markest saw the price correct down about 85% from the peaks. I could envision bitcoin bottoming out near the target or even a little lower which would test the 2017 market cycle peak, which would be about a 65% to 70% correction.
Bitcoin Weekly Chart
Looking at the weekly chart you can see just how severe of a correction bitcoin has gone through, after failing to push back above the $60k level in early May the price basically went off a cliff. The price is currently being supported by the 50 EMA, we'll see if that support is enough to reverse this correction or if it eventually fails. If it does fail there is another support level around the $30k level which is where the May 17th weekly candle bounced. If that support fails this time we will most likely see bitcoins price drop down near the target. It is possible that the 100 EMA could provide enough support to also stop bitcoins decline but that would still be a drop into the mid. $20k level.
Because I don't want to just be all doom and gloom I want to end with a more bullish scenario. It is possible we could see bitcoin drop to near the $30k level and together with the low set on May 19th create a double bottom. From that bottom, bitcoin could consolidate for a period of a few weeks or even a couple of months before resuming the current bull market. Or, maybe this correction could turn into a shallow bear market that lasts for a few months or even the rest of this year, and then bitcoin pushes higher again starting a new bull market.
No one can be 100% sure where bitcoin is going to go from here so all we can do is wait and watch as it plays out. We can also use this as a learning experience which could prove to be very valuable in future market cycles.