Trying to make sense of the likely near term price movements in Bitcoin using Elliot Waves

Update: first target at 6600 USD and 2nd target at 6000 USD reached… last target 5000 USD. Can rally from here in my opinion, but usual would be A-B-C move (7.8k to 5.5k, then up to 7k and down to 5k); think it could depend on BTC futures launch timing.

I am briefly writing up my thoughts on Bitcoin at the moment as I got quite a few requests recently.

I want to preface this by admitting that technical analysis is not necessarily my strongest suit. I have used it with limited success in equity markets, but I believe that due to the lack of institutional money in crypto, it works better on Cryptoassets than on traditional assets (as the former are driven more by greed and fear than the latter and also less liquid). Additionally, I personally (and this is just my choice) tend to believe that simple methods have the highest probability to work as opposed to extremely detailed TA using hundreds of indicators and having to settle on one exactly right version of how things are. This is why, to Elliot Waves (EW) specialists, my charts would look pretty basic. Therefore, I think TA is usually a good addition to trading thoughts, but would not guide my final judgement. Elliot Waves are intuitive to me as I think there is a good point to be made that greed and fear generally follow the same pattern in most humans and that this is likely to manifest itself in waves. They are however (in my experience) easy to count ex-post and very hard to count correctly ex-ante. Note that the last count I wrote about, despite providing some good guidance on trading did turn out to be wrong. Finally, I have no better insight into this than countless other writers, so take anything I write with a grain of salt.

Current situation

At the bottom of this post are four charts showing a possible EW count, each showing a different time horizon. I will not paste them all here in between the text as it might get quite difficult to read. So the only one that you see here is the 90 day picture. As a reminder, Elliot Waves stipulate that prices move in waves of 5 (1, 3 and 5 being in the direction of the major trend, in this case up; 2 and 4 being corrective waves) and that the individual waves are often made up of 5 smaller waves themselves in the case of those waves in direction of the trend and 3 smaller waves (A-B-C, with A and C going against major trend) against that direction if against the trend.

Looking at this chart (and the ones at the bottom), we can see that if the count is correct, Bitcoin is in wave 5 of its second bull cycle in the last 5 years. Wave 5 is the last wave in a cycle and the price should then give way to a larger correction like the one it saw in 2014.

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90 days

Furthermore, on a shorter time frame, Bitcoin is trading at what could be the top of wave 3 within that larger wave 5 (smaller waves denoted in blue, larger ones in green on this chart; previous cycle in red below). Also, we can clearly identify at least two trend channels, both of which have their upside boundary at or around the current price.

A likely path forward

Just looking at the technical situation described above and taking that in context of the Relative Strength Index also at strongly overbought levels, I believe the likeliest scenario from here is the following:

  • Bitcoin forms a short term top somewhere around current levels. It could be today, but I find it just as likely that it happens after the Segwit2X Hardfork and after CME futures on Bitcoin have started trading. Any kind of slow Bitcoin network connections due to 2X HF issues could be the catalyst here
  • The correction that follows takes Bitcoin to at least 6,600 USD, but quite possibly extends down to 5,000 USD
  • At that point, Bitcoin will start the final leg up of the current bull cycle, possibly driven by institutional demand following the launch of Futures and especially ETF products. This final wave could take the price well above 10,000 USD.

After this bull cycle has concluded, Bitcoin will enter a longer period of sideways and corrective trading. I believe one of the major catalysts for such a correction could be regulatory developments. See a previous post here:

The other major catalyst to a big correction in Bitcoin’s price that I can see now would be any kind of issue around the USD Tether / Bitfinex complex. The last time a major exchange (Mt GOX) collapsed, it took the price down strongly. I recently saw a chart correlating the price of Bitcoin to the number of Tethers in issue and it had an R² of 0.96, meaning extremely high correlation. So if Tether issuance drives Bitcoin price (and not the other way around) that is a serious potential issue on the road.

With all this being said, I would like to re-iterate (as I have done many times before) that I have no doubt that blockchain is a big part of the future and comparable to the invention of the internet in terms of impact. I also do not doubt that Bitcoin has a big role to play in that future.

Finally, the usual important disclaimer: This is not investment advice, this is my personal and not my professional opinion. Any asset can go to zero.

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5 year view
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2 year view
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6 month view

Written by

Entrepreneur, Fund Manager, Ex-Consultant and Hobby Ice Hockey Player. Child of the Sun. Any opinions personal, never investment advice, sometimes parody

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