In August of 2019 we released our first premium report on Bitcoin. At the time, Bitcoin was trading between $10,000-$11,000, following a bounce greater than 200% in less than a year.
We believed Bitcoin had provided strong evidence that a meaningful low was put in, and that a new bull cycle was starting. In our premium report, we stated that we expect a drawdown to at least the $7800 region, and that we would wait for this to happen before starting a position. More importantly, we were targeting the $65,000-$75,000 region in the coming year.
Here’s a snapshot of our 2019 report:
This was a bold call at the time, -- and yet the call materialized. The same system we used to target the $65,000 region in 2019 is the same system we are using to target the $88,000 - $110,000 region in the next uptrend.
We work in probabilities, and therefore manage risk accordingly. As long as any additional weakness in Bitcoin holds the $14,650 level, we believe that the volatility that we have been experiencing since November 2021 is part of a larger uptrend, with the stated targets currently in place.
Technical Analysis and Bitcoin
Bitcoin has no earnings reports, management overhauls, or supply chain disruptions that can affect its price. In other words, there isn’t a lot of news that moves the crypto market, yet this particular market moves all day and all night. It’s human nature to assume that a news event is the cause, yet this is simply not the case with crypto. Human sentiment is the primary driver of the crypto space, which is why technical analysis works particularly well.
Anytime humans come together in a codified arena and begin trading an asset with their instinct for security as the primary driver, patterns develop across price history. This is what we are measuring. One of the simplest patterns to measure is that an uptrend moves in 5 waves up, then corrects in a 3 waves pattern down. Once we get 5 waves up and 3 down, we then repeat this pattern. As of now, since the 2018 low, we only have 4 waves in place, which implies that we have one more 5th wave push before the larger bull cycle is over.
As long as any additional weakness holds the $14,650 level, then the above setup is still intact, which is targeting the $88,000 region at a minimum. However, below $14,650 and the probabilities shift that the current bull cycle is over. This means that the above 5 wave structure would fail, and we would need to see a larger reset at lower levels to start a new bull cycle. This is a crucial caveat to risk manage the potential of a renewed uptrend, and also sets up an attractive risk/reward at current prices.
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Steps to Confirming a Low
When confirming a low, there’s a specific criterion I am looking for. The first of which is do we have a complete corrective structure in place? Corrections tend to move in 3 waves, where the final wave down unfolds into a 5 wave structure, tends to be relatively dramatic, and is met with very negative sentiment.
As you can see above, we have a 3 wave correction where the final C wave is a clean 5 wave structure that unfolded in a waterfall-style event. Furthermore, regarding sentiment, the crypto fear/greed index has been in extreme fear for well over a month. In fact, on June 19th the reading was at a 6, which is one of the lowest readings in its history.
So, the first step is in place. Can we extend lower? Of course, but the structure is already quite stretched. Next, I want to see a clean 5 wave bounce off the low. The reason for this is that uptrends move in 5 wave patterns. This is also fractal, so a small 5 wave pattern builds into a larger one, and so on until you have reached your target. So, a micro 5 waves off a low suggests that we are starting a new uptrend.
As you can see above, we do have 5 waves off the low in black, followed by a 3 wave retrace that holds the low. As long as any retrace holds the $19,000 support, the micro 5 waves off the low remain intact. Below $19,000 and it opens the door to lower lows, and will also take us closer to the critical $14,650 support.
So, we have 5 waves up and 3 down, and this is now building into a larger 5 wave structure. If correct we have our first larger wave in place as well as our 2nd. The final step is that I want to see a breakout above the top of the larger first wave, which is at $21,650. This typically looks like a cup and handle pattern, and we will need to see a sustained break above this region. A push above this level, and the odds begin to increase substantially that we are beginning the final 5th wave in the larger uptrend.
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