Bitcoin: Exploring a bearish perspective.

“2018 will be the year of crypto” was a widespread prediction in late 2017. This was symptomatic of the market wide excitement and peaking bullish sentiment that set new standards for expectations. The cryptocurrency market saw phenomenal growth across the board, in terms of prices, market participants, market capitalizations, exchanges, initial coin offerings etcetera. For bitcoin , throughout 2017 every price correction was followed soon by new all-time highs. “Buy the dip” became an almost evangelical statement. The dip buyers, together with long term holders saw their strategies rewarded. Their success stories became a crucial selling point for those new to the market.

評論: Over the course of 2017 the crypto market consolidated in its nature; a market consisting of mostly retail participants that are predominantly on one side of the boat. Up until the CBOE and CME launch of bitcoin futures the instruments to short this market were few. When sentiments were peaking in mid-December, bitcoin was trading just below the 20.000$ level.
2018 started with a significant pullback in price. After a few weeks of selling action price bounced off the 6000$ area. After that price recovered quickly up to as high as 12000$. Once again, the market bought the dip:

As shown above, since we bounced back to just below 12000$, price has moved below the psychological level of 10.000$. So, as always, the question is; where do we go from here?
Will the dip buyers be proven wrong this time?
My personal rule for crypto is: anything is possible. The insane growth in price that many cryptocurrencies saw in 2017 crushed most targets and expectations people had. But it goes the other way around as well. Many are currently saying bitcoin will never go below a certain price level again. To show the foolishness of such statements, let’s take a step back and look at a daily chart of 2014:

It was the year that became notorious for the hack of the Mt. Gox exchange that caused a huge crash in February. Before that, price had started to retrace after the significant run up of 2013, reaching a price just below 1200$. At that point, few expected to see prices around 100$ again. Nonetheless, the price of bitcoin saw a decline of almost 90% over the following months and found a low around 150$ in 2015.
So will a similar scenario play out again? Or was the bottom found at 6000$? The truth is, nobody knows. And remember, in crypto anything is possible. Supposing we go lower from here, let’s look at some scenarios for how a bear market might play out.
First of all, we have some key levels on the way down. Roughly speaking, if we break the 9000 and 7800 levels, it is likely we’re headed for 6000 again. The 6000 level is crucial. If we bounce there again, a W shaped double bottom formation may take shape, meaning the bottom is in for the time being. This level is also psychologically important for those who bought the dip around 6000 last time. For many, reaching this level will be their final confirmation of a reversal to a bear trend, meaning lower prices are in the cards.

Elliott Wave Theory suggests we may be headed towards 3150:

But what about a longer (potentially 20 months) bear trend like we saw in 2014-2015? Extending the bar pattern from current levels on a log chart, we get a potential low of 2162:

But of course, in the words of the great C.S. Lewis; “Things never happen the same way twice.”
So here is a general overview of price levels to watch if we get a full blown bear market. Note that it is purely a representation of potential important price levels in a worst case scenario, the timescale does not apply.

A bitcoin price of 2000 might sound crazy today, but so did 20.000 a year ago. I’m not saying these levels will definitely be hit, again, nobody knows. But it is good to consider all possibilities.
So… has the bubble popped? You could argue both a yes and no answer to that question. Personally I think the bubble talk is irrelevant. Prices overextended in 2017 and you could call that a bubble. But it will likely not be the end of Bitcoin. This is not a binary outcome scenario (yet). And to end on a positive tune - and give credit to the long term holders out there – let’s look at the tiny blip that the 2014 pullback represents on the chart today. It’s all a matter of perspective.
評論: It's been 9 months since I posted this idea and we did see a bear market in 2018.
Many thought the 6K level would hold but it didn't. As I mentioned above, it's a crucial psychological level that was broken and the market is showing signs of despair since. It could be that this is a final capitulation type of move we are currently seeing, but my guess is we'll see a choppy market into 2019. Probably between the yellow price levels marked below. If we do break 3K, the ultimate bear scenario is in play and we may visit the 2013 top level. It could also be that we never go below 4K, but for now, bulls are showing no strength. We might see bears get overconfident though, and if you are a long term BTC bull, there is no shame in buying around the 4K USD level.. Good luck out there.

評論: We saw a bounce above 3K (for now). Entering the new year in the chop zone as projected.

評論: Zooming in, we are chopping along in the zone as expected.
Sentiment shifts fast and easily here. People switch from calling bottom to calling doom in a matter of hours. It wouldn't surprise me if we test 3K again.

評論: After some recent bullish action we saw a sharp rejection from the top of the chop zone, as the weekly closed with a large inverted hammer candle. As the market is showing some new bullish momentum over the past few weeks, this could be a shakeout before we do break out of the chop zone (above 4K). The real long term resistance is in the 5-6K range. Bulls are likely not out of the woods yet, I think a continuation of the sideways action we've seen over the past months could last well into summer (July).
A new move down, potentially forming a long term bottom around 2K is also still within the realms of possibility, although less likely given current market conditions.

評論: We have slowly but steadily moved up to the top of the chop zone over the past weeks again. Chart looks ready to try a breakout, meaning we could head towards 5K soon. 6K is the big one, ofcourse.

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