While Crypto Black Monday has come and gone with nary a whimper, the prevailing thought in the Bitcoin community is that we are in a bear market and the other shoe is going to drop any day now. In this article I’ll argue why we are still within the bull phase of the current cycle, and what that means for future price action.
Bitcoin is still King
Despite historically low dominance, the trend within the crypto markets is still set by Bitcoin. As they say, A rising tide lifts all boats and nowhere is this more true than in the crypto space. This latest bull cycle was officially recognized as such in early 2017 when it passed the previous all-time high of ~1200 USD (and in hindsight, actually started after the bottom in 2015) and will also end with Bitcoin correcting in epic fashion, likely by mid-2018 (more on this later).
Some astute traders will point out altcoins don’t typically rise in lock-step with Bitcoin, and actually perform best when Bitcoin’s price action is sideways or down. That’s true, but it misses the larger perspective that altcoins can only do so within the safety of an overall crypto bull market created by Bitcoin.
Still Bullish (aka Why we are in Wave 4 instead of Wave B or C)
While Bitcoin has traded sideways in the 14K region, multiple altcoins have broken out to new all-time highs (ETH, XRP, DOGE just to name a few). This would not be possible if the crypto-space as a whole were in a bear market. Perhaps one day there will be a true decoupling but for now Bitcoin sets the trend and altcoins follow. Given that Bitcoin leads the market, if altcoins are bullish and making new all-time highs, then Bitcoin simply cannot be in a cycle-level corrective phase.
The Mainstream Markets
One can also consider that when an obsolete company like Kodak can jump 60% after announcing their own cryptocurrency, it shows that the overall environment is still very bullish. Would they have gotten a similar reaction in say, 2015 when Bitcoin prices languished in the 200-300 USD range and sentiment was in the gutter? Highly doubtful. Just the fact that a has-been, technology-laggard company would even attempt this is a testament to how hot crypto is right now.
Everywhere I look I see Elliott Wave technicians saying we are in the corrective phase after Wave 5 peaked just shy of 20,000 USD. Most charts and analysis I’ve seen places us in either Wave B or Wave C, with the eventual bottom around the 8,000 USD level. This is a very seductive viewpoint (even for Bitcoin perma-bulls) because 1) the bottom is known and 2) what comes after a Wave C bottom? That’s right – a new bull cycle.
Another aspect is the timing just doesn’t add up. If we are truly in Wave B or C that means while the bull market took a better part of a year to play out, the bear market runs its course in just a month or two with no true blood on the streets? Wishful thinking.
Fourth waves generally correct 23%-38% and often play out with sideways price action. If we use 19,891 as our Wave 3 peak, a 23% correction would be ~15,316 and a 38% correction would be around 12,332. While Bitcoin did overshoot the 38% correction by a bit (bottomed ~11k intraday on 12.21.2017) prices have indeed largely been sideways between the 23 and 38% correction levels.
The market has the uncanny ability to surprise. Given our current situation, what’s the scenario that would catch the maximum number of people off guard?
While most people are expecting the next leg down, Bitcoin surprises and breaks to the upside. FOMO kicks in and prices reach a new all-time high between 25,000 and 40,000 USD by second quarter 2018. In commodities, Wave 5 is typically the largest impulse so Bitcoin reaching something absurd like $70,000 is not out of the realm of possibility.
The crypto markets will settle into bullish complacency as most people will believe this is the start of a new bull cycle.
The first correction down to 24,000 USD (if coming from 40K) won’t dampen spirits and will be seen as a “buy-the-dip” opportunity. The rise back to ~34K will be seen as the “return to normal” with FOMO driving new money into anything and everything. This will set up an ultimately devastating bull trap.
At this point people will be expecting Wave 3 (predictions of 100K+ will be common, Jane Doe will be shilling her favorite altcoin to you on the subway, etc) but what will actually play out is a heartbreaking C wave eventually bottoming around 11K by early 2019.
Don’t tunnel vision too hard on the specific prices or dates as predicting the future is an inexact science to say the least. Focus on the general shape and relative timings of the price action and allow plenty of wiggle room (i.e. if trying to buy the bottom, create several limit buys at staggered levels down to 11K rather than a single limit buy at 11,000).
Predictions are living, breathing things and I reserve the right to change my mind as new data becomes available.