Bitcoin Finally Ready for Extended Consolidation?

Bitcoin Finally Ready for Extended Consolidation?

By Jonny Dale | Bitrandy | 22 Oct 2018


If you've been trading crypto for any significant period of time you've undoubtedly seen the Wall St. Emotional Market Cycle graphic. It states which emotions are being felt at which point in the price cycle of any asset. The fractcal shape that this market cycle forms has been incredibly repeated in numerous, unrelated markets throughout the history of the world. It is incredible simple, but possibly one of the most important things to pay attention to and keep in mind when trading. I'm going to show it to you one more time, just for good measure.

 

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If you look at the Bitcoin chart on Bitstamp (which is the oldest Bitcoin chart as far as I'm aware) going all the way back to 2011, you can see we've repeated this pattern at least 3 and arguably 4 times already, depending on how you look at it. And as the market gets bigger, the length of time for each cycle increases. So as many traders look to find the bottom and be in prime position for the next bull run, its a smart move to look at Bitcoin's history, as it clearly repeats itself. 

 

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As you're all well aware, Bitcoin spent all of 2016 and 2017 in a mega bull run, and all of 2018 in a bear market. With the exception of a few weeks here and there when bitcoin was bouncing and altcoins had the space to make decent moves. But the Bitcoin bounces are getting smaller and smaller and the price is flattening out. This is very typical behavior after a bull run. The market needs time to recover after the mania a bull run inspires. When you zoom in you can get a better view of this.

 

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Bitcoin has now been in a downtrend for 300 days, and quite flat for about 40 days. It's quite clear that we're now in a consolidation period, although there is potentially room for one more drop before we find the final bottom of this market cycle. There is speculation that because miners' break even cost is somewhere in the high 5000s they are proppin the price up so that they dont have to operate at a loss. But from a purely technical standpoint, lets compare this bear market to the last Bitcoin bear market, in 2014-2015.

 

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It took 407 days to reach the bottom, and the full retrace was 86%. It then took another 270 days of quite flat consolidation before we commenced another bull run. In this market cycle, it has been approximately 340 day since the top, and the deepest retrace we've had was 70%. And since the market is much bigger now (ignore the volume on this chart as Bitstamp is just much less popular, but overall market trading volume is way up from 2014-2015), logic would dictate that this market cycle takes longer to complete than the last one. The other side of the argument is that there's much higher demand for Bitcoin now so we won't stay bearish or flat for as long as last time. Not to mention the fact that we have way more exchanges and liquidity for people to enter the market, and the last bear market was largely influenced by the collapse of Mt. Gox, which was responsible for a huge chunk of the trading volume back then

So while I hate to be the bear, a good trader is always ready for moves in either direction, and if we're using the last market cycle as our basis of reference, we should still have at least another couple months before we find the bottom, and then a significant period of time staying flat before we make another bull run. Some of the smartest traders I've had the chance to speak to have estimated that mid-late 2019 is when we'll start our next cycle. This sounds quite logical to me.

Therefore in my opinion, there is a strong chance we at least make a short term dip down to the 4k level at some point, as 80% retraces are common for a full market cycle. But buying Bitcoin now for a long term move is also probably going to look like a great entry in a year or two. Especially if you're ready to average down in the instance that we do drop lower. 

That being said, we've been quite flat, and with that potential price floor being created by the miners, there is a chance we've already started the flat consolidation period. So if you're looking to enter into a long term Bitcoin position, now would be a perfectly acceptable time to start averaging in.

Happy Trading!

The author is not a registered financial expert and this is not financial advice. Cryptocurrencies are highly volatile assets and risky to trade. Make sure to study trading diligently before putting your hard earned money on the line, and never risk more than you can afford to lose. Risking a maximum of 2.5-5% of your entire portfolio is a common practice amongst professional traders. 

 

 

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Jonny Dale
Jonny Dale

Jonny is a crypto evangelist who has been yelling about bitcoin from the rooftops since 2015. He spent most of 2017 and 2018 trading and is also involved in several other crypto projects.


Bitrandy
Bitrandy

All things crypto, with a focus on TA.

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