After briefly dipping below $20,000 in recent days, bitcoin (BTC) confirms a second major low. This development offers the technical perspective of a possible end to the downtrend. However, the cryptocurrency market remains strongly impacted by the global economy. The persistence of a still significant restriction of available liquidity as well as the maintenance of risk and tensions specific to the cryptocurrency ecosystem leave before us a bearish specter. Despite this, bitcoin (BTC), often advanced in the statistics between the different markets, could now confirm its exit from the downtrend initiated in March. This major support at $20,000 not only corresponds to major technical thresholds, but also to a decisive historical zone. But the risks remain high in a context of exuberant uncertainties.
Fourth validation of the $20,000 threshold
For almost three months now, bitcoin (BTC) has confirmed a zone of stagnation around $20,000. This price zone does not only correspond to the previous peak of 2017. It is also a zone structurally played by large investors. Indeed, this threshold also corresponds to the inflection point of the upward trend observed between 2020 and 2021. In other words, some funds and major market players have an entry price concentrated around the price of $20,000. This area is all the more strategic as a lasting move below this support would technically validate a return to the downtrend. To learn more about this, please see the article Bitcoin (BTC): Hurst’s Methodology in Technical Analysis (2).
In an analysis from last June, when bitcoin (BTC) was still at $30,000, we projected a target near $20,000 by the end of summer 2022.
” This suggests a bearish acceleration at least to the low point of the next cycle (2.4 years). The next 2.4-year cycle low is expected to take effect in the summer of 2022. The construction of valid trendlines allows the construction of relevant resistances and supports according to cyclical criteria.– Analysis of June 5, 2022
What technical movements of bitcoin (BTC)?
The decline of bitcoin (BTC) responds to very precise technical mechanics. The regularity of bitcoin (BTC) movements thus portends future clarity. Indeed, several elements agree in the direction of a great weakening of the trend. In addition, the presence of major statistical levels heightens the suspense. Indeed, if the decline in bitcoin (BTC) were to last for many more months, and/or if a further decline of more than 12% were confirmed, then the upside potential of bitcoin (BTC) in the long term would be severely reduced. Decryption of a strategic technical and statistical situation.
Building an absolutely steady drop
Bitcoin has drawn a very clean technical movement from its highs. Indeed, we notice both a great regularity of the drop phases, but also a great symmetry of the drop amplitudes. Thus, the graph below shows in yellow the bearish cycle of 3.14 months which appeared in a very relevant and regular way. At the same time, a green arrow represents the amplitude of the drop observed between April and July 2021 (3 months). By duplicating exactly this green arrow on the start of the bearish cycles in October 2021 and in May 2022, we then find exactly the levels of decline reached. In other words, that is, the construction of the downward movement of bitcoin (BTC) is perfectly regular in time and amplitude !
But let’s take a closer look at the most recent downward movement. He responds to a ABC diagram. Indeed, bitcoin (BTC) is an absolutely perfect case study to describe Eliott’s waves. First of all, the price of BTC respectively experienced 3 peaks during its uptrend (August 2020, April 2021, and November 2021). Otherwise, the bearish phase was built according to 2 lows (January 2022 and June 2022). We also speak of ABC phase with A and C the two troughs of the Eliott wave. In technical analysis theory, the major low point is reached at the 61.8%, 50% or 21.8% Fibonacci retracement. Effectively, the bullish impulse through three highs is symmetrically followed by two lows.
Here again, Eliott’s theory confirms the analysis of temporality and amplitudes. However, a breakout of the pattern would signal big upheavals.
How far will the drop go ?…
We have to keep this in mind: bitcoin (BTC) is down over a period that now represents 50% of the duration of the bull phase. If we postpone the start of the uptrend (March 2020) by symmetry, then next significant period would be early summer 2023. This observation that the downtrend would be at the latest (symmetrically) completed within 10 months is of major importance. In addition, should the bitcoin (BTC) decline continue beyond the end of the first half of 2023, the future upside potential would be significantly reduced.
Furthermore, these temporal alert signals can be combined with amplitude alert signals. Going back to the previous chart, we can see that the drop since the start of the year has been constructed according to flags. In technical analysis, a flag (or pennant) is a generally quite short figure that marks a rectangle in a downward phase. The release of this flag usually marks a strong bearish acceleration. There are thus the flags which drive the downtrend (break), the flags which confirm it (continuation), and the flags which end the trend (exhaustion).
To date, the recent drop in bitcoin (BTC) has validated the release of the flag built since June 2022. In the case of a continuation flag, then the next downside target would be below $14,000. However, it is important to specify that the $20,000 area is the 23.8% support of the retracement from March 2020 to the November 2021 high.
In this sense, two scenarios emerge:
- First, if bitcoin (BTC) continues its decline for more than 10 more months. This would signal an excess of downtrend duration. Conversely, the probability of witnessing a sustained and lasting recovery of bitcoin is statistically reduced.
- Second, if bitcoin (BTC) sustainably breaks through the $20,000 price zone. This would confirm a rapid bearish acceleration towards significantly lower levels. Also, this would invalidate the resumption of a pronounced downtrend which would congenitally reduce the bullish potential of bitcoin (BTC) in the long term.
Technical indicators and market status
The fractal indicator (read more: Hurst exponent and financial analysis) gives us a daily basis Hurst exponent of 0.6. It means that the price of bitcoin (BTC) is still in a relatively large trend period. Nevertheless, a maximum of the Hurst coefficient often indicates a maximum trend and therefore a probable reversal (close to 1, green zone on the indicator on a black background on the chart). In this sense, the price of bitcoin (BTC) has probably come out of a bearish excess, despite the fact that the trend remains typologically as such.
Moreover, on a weekly basis, the fractal indicator shows a still relatively bullish trend zone (0.61 > 0.5). This means that the $20,000 price zone also ensures the maintenance of a long-term trend that is statistically positively oriented. On the side of traditional indicators, the RSI or the Bollinger bands indicate fragile levels. Clearly, the price of bitcoin (BTC) remains in a trend statistically “moderately bearish”. With the presence of major levels, this means a reduced probability of bearish acceleration.
A leading statistical indicator?
Often, investors fail to consider bitcoin (BTC) for what it unquestionably is: a volatile asset. Indeed, we have carried out several demonstrations relating to the measurement of the impact of liquidity on assets such as bitcoin or stocks. Thus, it appears that bitcoin (BTC) is up to 5 times more sensitive to liquidity than the S&P 500 for example. Conversely, this means that peaks (or troughs) in the S&P 500 are usually preceded by a peak (or trough) in bitcoin.
We have thus produced the graph above. Indeed, we have identified in red areas where bitcoin (BTC) preceded S&P 500 reversals. Apart from during the crash of 2020, bitcoin has acted as a leading indicator. This is explained by bitcoin’s extreme sensitivity to liquidity (=volatility). In this sense, if bitcoin (BTC) maintains the $20,000 zone, so will the equities. In other words, the maintenance of this price threshold should be translated into equities by the security of lateralization. In the opposite case, a bearish acceleration of bitcoin would inevitably be synonymous with an increased lack of liquidity… for the reasons that are known to us.
Funds are talking crypto again
Despite the rigor and harshness of the events, several funds seem to be betting on the situation. Recently, the Temasek investment fund, based in Singapore with a portfolio of more than 400 billion dollars. The latter has invested 100 million dollars in the game company Animoca Brands. At the same time,Reddit co-founder Alexis Ohanian announced $177 million investment in crypto ecosystem. The venture capital 776 will thus add substantial sums in the industry.
Other funds are also interested in cryptocurrency.This was recently the case for Capitelia CH, which launched a specialized product. This registered product responds to a demand for diversification around cryptocurrencies in financial products.
In conclusion
Ultimately, bitcoin (BTC) is going back to square one in the summer. The graphic and statistical study demonstrates the persistence of a downward trend. However, this trend is still very moderate. The new exhaustion on the $20,000 area reinforces the hypothesis of building sideways. However, the bearish spectrum is still strong amid new restrictions.
In addition, it should be remembered that the decline of bitcoin remains very constructed. The regularity of the drops in time and in amplitude demonstrates a strong technical construction. In addition, there are cyclical and technical patterns (Eliott’s wave, flags, retracements and supports, etc.). Thus, a lasting fall in bitcoin beyond the end of the first half of 2023 would be heavily penalizing. Also, a lasting break from the $20,000 level would imply the arrival of particularly low following supports.
Additionally, bitcoin (BTC) generally acts as a precursor to S&P 500 moves. Thus, a signal of cryptocurrency bearish acceleration should be interpreted as another major liquidity disruption. Despite the uncertainties and tensions, the funds confirm their interest. Indeed, several hundred million have been invested in recent weeks. At the same time, some new products are introduced. According to financial custom… “wait and see”…
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