Bitcoin: More choppy water ahead (BTC-USD)

Produced by Ryan Wilday with Avi Gilburt and Jason Appel

In previous articlesI saw $16,000 as the key level for Bitcoin (BTC-USD). This level is between a more immediate end of the current bear, which now exceeds 13 months and a bear market that could extend into 2023.

In Elliott Wave analysis, $16,000 represents the 50% retracement of the supposed third wave from the 2018 low. This third wave began with the bottom of the “COVID crash” hit on March 13, 2020 This comeback is where a reliable fourth wave should hold, before starting the fifth wave.

In the case of Bitcoin, I expected that fifth to take Bitcoin to $125,000. I show what that number would look like in the chart below with the blue box representing that support region. This has been my main count since late 2021, but it looks like I’ll be pressured into going with my alternative discussed below.

Bitcoin climbed below $16,000 from around $500 on Nov. 21 and rallied quickly. Normally, I can accept a spike below a key level if a rally starts soon, as is the case with Bitcoin that day. However, since then, this reversal has rallied correctively by Elliott Wave standards, suggesting that another breakout of $16,000 may occur in the near future.

Elliot Wave analysis looks for five waves from a low to suggest a trend may be changing. Determining whether a structure is five wave or not is not based solely on visual analysis. It also involves evaluating the structure using Fibonacci retracements and projections to measure the proportional relationship of each subwave to another.

The details of this method are beyond the scope of this article. But essentially, I have to think of the move from the November 21 low as three waves. This is indicated by the ABC structure up to the December 4 high, marked with the Circle A label. of wave A. . This type of B wave is common in crypto.

Counting the December 4 high as A means there should be wave C in the $18,300 region to complete wave IV, before Bitcoin drops to $13,500.

However, I am also following a secondary, more immediate bearish count where we have seen all of wave iv where the black count indicates (B). This scenario became solid potential when Bitcoin formed an impulsive move down from Y/(B). This indicates that an immediate decline to $13,500 is possible, and it would be confirmed by a decline to $15,875 from here. I rendered this potential in red.

Bullish alternative

Both scenarios above are ultimately bearish, one with an upward detour first. I can offer a bullish view that has a low probability. This would require five waves down to $19,500, shown below. This pattern would be called a diagonal and is valid in reversals as a wave 1, or the end of a move as a wave 5.

The subwaves of these structures usually take on an ABC structure, as I showed above. However, these structures are unreliable for aggressive trading until all five waves and the following wave 2 hold. I am mentioning this only to let you know where I am clearly wrong that Bitcoin will hit new lows in the coming weeks or months.

A new primary count

Now that we’ve spent some time on the microstructure, we need to go back to the weekly chart. As noted, falling to $13,500 invalidates my primary long-term view, so we need to revise it. In short, the current bear market is likely to last for many more months. And, I have to adopt an alternate count that I considered my new main point of view.

A breakout at $13,500 indicates that the top in 2021 is a Wave B top, in a large-scale flat correction that began when Bitcoin hit near $18,000 in December 2017. Elliott Wave analysis, the Bitcoin bear market that moved downward in 2018 never ended. It consisted of three phases:

1. A bearish wave A in 2018

2. A bullish B wave from 2019 to mid-2021

3. A bearish C wave from mid-2021 until today.

With this in mind, Bitcoin is unlikely to end this bear market in 2023. Ideally, it begins a rally after bottoming near $13,500 in the $20,000-$25,000 region before finding a final low near $3,000. $ to $6,000.

Once this bear market is over, I expect a multi-year rally to a low of $160,000. And an extremely bullish multi-year rally to $1.2 million is possible. In this second view, however, there should be many mini bear markets that correct 50% or more. These potentials will be discussed in detail in future articles when we have a significant background.

What about the halving?

This discussion requires me to discuss bitcoin cycles, which can be called “halving cycles”. Halving is the cyclical 50% reduction in Bitcoin block rewards for miners. The next halving is expected to take place on March 28, 2024. On average, Bitcoin started a new bull cycle 15 months before halving as the halving sparked interest. We are now in this window. To see: Bitcoin Halving Clock

I watch this cycle with curiosity. However, I would challenge mass market expectations for this cycle with a few considerations:

1. The halving has happened four times in Bitcoin’s past. That’s too few data points to create a robust strategy.

2. Much of the Bitcoin community focuses on these cycles, and when too many people expect a market event, it often doesn’t happen.

I’m not saying a new bull cycle can’t start imminently. On the contrary, I watch these cycles closely. However, I want to see the price action confirm that the cycle is happening once again.

Tactically speaking

What you do with this information should be based on your capabilities, risk tolerance, and primary intent.

I am both a long term investor and a swing trader. From time to time, I trade intraday. As of this writing, in my short-term accounts, I am shorting Bitcoin using futures, as well as BITO options. However, in my long-term portfolios, I accumulate slowly. I’ve gotten the most out of Bitcoin by accumulating near major cyclical lows, but I never assume I’ll catch the lowest tick. I just make sure that the amount I accumulate is a very small part of my monthly cash flow.

It may seem foolhardy to start accumulating when I expect to see $6,000. Again, I emphasize that I keep additions to my portfolio small and my short-term trading with futures provides partial coverage of Bitcoin held in wallets. If you want to adopt this tactic, expect lower bottoms and the right size to support your emotional and financial comfort.

In conclusion

To sum up, $16,000 was a very important level for Bitcoin – a level at which it should have hit a major low. Although it reversed just below this level, which would have been acceptable, the current rally does not inspire confidence. So I’m looking lower, maybe as low as $6,000.

But that didn’t stop me from slowly accumulating. I view these cyclical lows as opportunities of a lifetime – except Bitcoin has given me several in my trading life. I will stay slow for now, but when we get a firm reversal I will play the bullish side more aggressively.