Monday's Market Outlook #3
"Corrections in a bull market are opportunities – not threats. Good luck, it's going to be quite the year." -Raoul Paul (April 25th, 2021)
The 2020-2021 crypto bull run has had its first major pullback. For some (the veterans) it is not their first rodeo, and for others (the newbies) it is mass hysteria.
Their first go around with a 20-30% swing to the downside is rather demanding, mentally and psychologically, and without proper guidance such volatility can destroy any aspirations they had as a crypto investor.
In this week's Monday Market Outlook we break down the current downtrend in Bitcoin, and why I think we may make some surprising moves. We will look at Bitcoin in two different lenses: the macro and the micro.
The bull run in 2013 had an epic finale on its final month, opening at around $194 dollars and closing the month at a whopping $1,136.
The year became known as the year of Bitcoin. At the time Bitcoin was only known to the cyberpunks, early stage Silicon Valley pioneers, and dark-web criminals. Since then it has been bought by Goldman Sachs, praised by Times Magazine, and paid as a salary to professional athletes.
The 'dominoes effect' is clearly taking place, and this year will be the tipping point.
Let's look at some historical chart comparisons:
This is a chart mapping the duration of each bullrun, starting from the day Bitcoin flipped macro-bullish and ending with the day Bitcoin hit its cycle top.
The 2013 bullrun lasted 287 days and the 2017 bullrun lasted 289 days. We can assume the 2021 bullrun to last 288 days and as it stands we are on day 146. What would the chart look like in terms of price action if this chart holds true this year and we begin seeing a parabolic rise?
That's right, Bitcoin could reach a top of around $350,000 dollars this year.
A price-chart comparison would look something like the above image. As you can see, just like the last two bull runs, the last month marked the most significant amount of gains (i.e the blow-off top). The last month of the 2013 bull run saw roughly a 6x increase ($194-$1136). The 2017 bull run saw a 3x increase ($7000-$20000).
If this bullrun does indeed last 288 days, it will end on September 14th. Bitcoin's 700,000th block is almost exactly 1 month before that (August 12th) and could mark a psychological catalyst for the blow-off top, running into September 14th.
Using the historical data, we could assume Bitcoin does a 1.5x in its final month of the cycle, giving us a more conservative price of $228,000 dollars a Bitcoin.
Now that we have discussed price targets, let's take a more psychological approach and combat the 'Bitcoin is a Bubble' archetype.
The above chart shows the world's largest asset bubbles ever recorded, from the Gold Rush to Tulip Mania. Bitcoin actually falls well within that category in the 2017 bullrun.
Except in 2017, 90% of people thought Bitcoin was a ponzi-scheme, a pump-and-dump, and (after the price collapsed) a failed experiment. This year marks an unprecedented chapter in the book of global asset bubbles and only two paths exist:
- We are in the largest bubble ever seen — and the largest the world likely ever will see — and nowhere near the top.
- This is not a bubble, and it is a shift to a new monetary criterion.
Let's go over why I think option number 2 is the more likely option.
Above is a chart showing individuals and institutions alike who have bought Bitcoin and are 'HODLING' (not selling) them, thus creating illiquidity. The trend is increasing on a massive and global scale.
Below is a chart showing the decrease in the volatile price swings to the downside as more institutions and bigger individual players enter into the Bitcoin space.
As you can see, the top third portion represents the bullrun of 2013 where you saw drawdowns to the tune of 60% on multiple occasions as they made new all-time highs. In 2017 we saw price volatility decrease around 33% as maximum downside pressure was around 40%. This bull run is even less with our current dip, shown in red, hitting around 26%.
This is the evidence that institutions are here, and they are 'hodling' for the long haul.
Now that you understand just how big this year could be, lets zoom in a little bit and figure out where we are at in this cycle and how we get out of the current dip.
As we discussed earlier, Bitcoin is has dipped from its previous all time high of around $64,000 to a low of $46,000 dollars. Let's break down the signs of a bearish correction, where we are going, and what the price looks like currently.
On the daily chart, the massive bearish divergence on the RSI was very clear (yellow lines). A bearish divergence is when your oscillator, in this case the RSI (purple box on the bottom), is printing lower highs and trending downwards. Meanwhile, your price action is printing higher highs and trending upwards. This pattern had been taking place since the highs in mid-February and was due for a downward correction, which is why I think this is only the first major correction this bullrun.
Now, what does that mean for us today?
Firstly, we are nowhere near out of the woods yet. We just printed our first major green candle (in our case, blue) which marks a lower high. Lower highs, aren't necessarily bad but definitely aren't good either.
We have some significant chop ahead of us (that we will break down more in the next 4-hour chart), but the thing to keep in mind during this bearish correction is we are respecting the massive Schiff Pitchfork almost perfectly.
The Schiff Pitchfork is the multi-colored channel drawn, and uses previous price action to predict future price action. As you can see, the price has been respecting the top of the channel as Bitcoin makes new highs, the median (green channel within blue channel) as Bitcoin makes less volatile upswings, and the bottom of the channel as we correct to the downside.
We bounced perfectly off the bottom with massive support from the 100-day moving average (blue line) and are making our way back upwards.
Now, let's break down the 4-hour chart.
The 4-hour chart shows a more bullish story. We broke out of this massive descending resistance with a huge 4-hour candle to the upside. Looking down on the chart at our RSI we also broke out of the bottom red resistance level and are making our way to the next longer line of resistance at around the 60-level RSI.
The thing we need to keep in mind is the significant spot above, indicated by the rectangle marking the price of $56,000 and $57,500. We made some consolidating efforts previously to swing back up, but failed to do so and dropped even lower.
This will pose as short term resistance, and we need to break through it to see ourselves back above $60,000. The blue arrow above the rectangle is pointing to the 100-day moving average (blue line) and the 200-day moving average (red line) with the possible intersection. If the blue line crosses the red line, which it is very close to doing, it will mark a "death cross" which is a major bearish signal and calls for further downside.
The bulls can't drop the ball here and need to continue up or sideways, any downside price action will compound on itself and we could go all the way down to the weekly averages. Still, even if we did that, we'd still only be in 30% correction zones which are extremely healthy.
A good reason behind why I think we continue upwards is this graph, the bitcoin hashrate. Last week's Market Outlook we broke down the hash rate collapse and the effect it had on the market. as we discussed, the hashrate is used mainly as a psychological tool to influence investor sentiment as not enough data has been gathered to prove it has any direct influence on Bitocin price. With that being said, the hashrate has recovered nicely and stabilized itself to its previous median before the collapse. This will help more experienced investors make informed decisions on recovering or adding to their Bitcoin positions.
Expect altcoins to gain back there momentum with Bitcoin as well.