The State Of Bitcoin 10/22/2018

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Technical Analysis

The State Of Bitcoin 10/22/2018

By Ryan Warner
October 22nd, 2018

Bitcoin has been in a rising trend channel since August of 2015. In this analysis, we're going to look at that trend channel from the long-term perspective as well as where the price of BItcoin rests today. What's going on? Why is the action stuck sideways? Where are we going?

February 2014, Mt. Gox, the world's largest Bitcoin exchange of the time handling over 70% of all Bitcoin trades suspended trading amid the largest ever Bitcoin hack and shut down. Bitcoin was trading at roughly $814 before this event.

The Mt. Gox hack collapsed the price of Bitcoin to a low of $175 in January of 2015. It was from this point that Bitcoin remained stuck in a sideways trend until August 2015. This began the true beginning of the new BItcoin bull market. From August 2015 BTC continued to produce higher lows culminating at the $20,000 price point in December 17.

This price peak established the top of the trend channel that Bitcoin has been experiencing. Looking at this over the grand scheme we can see that Bitcoin is indeed following an Elliott Wave pattern. From the Wave 1 rise to $1100 in November 2013, the Wave 2 correction correlating with the Mt. Gox crash in February of 2014, to Wave 3 at $20,000 in December 2017, with our Wave 4 correction in 2018. As BTC is currently in Wave 4 there still looms the great possibility of a capitulation dump to the 23.6 Fib Level which would bring us to a price of $4800 before beginning primary Wave 5.

Following the trend channel that Bitcoin resides it now this could lead to Bitcoin hitting a price in excess of $80,000 at the top of the channel. Does this seem unrealistic? A year ago many speculators thought that $20,000 was unrealistic. 

Moving on to the more localized timeframe, we'll take a look at the chart and evaluate Bitcoin's sideways movement.

Bitcoin, of late, has remained in a low-volume, no-trade zone with practically little action outside of chop. Some would consider this consolidation, some just a lack of interest from bears or bulls. Many say it is a bear market but is it really? Or is it simply a correction? From the short-term perspective for traders we have to consider three possibilities and properly prepare ourselves for each one. 

The first possibility being the capitulation dump. With the possibility of the $6000 support breaking, as it has been tried many times, there is the large possibility of the breaking of this support. Such an event would see a rapid panic sell of Bitcoin likely leading to the immediate bottom of the trend channel taking the price of BTC to $3800 - $4000. Though this, seemingly, does not appear to be the likely course of action it is a possibility none the less, and one that must be considered. 

The second possibility is the continuation of the sideways action to the trend channel support line which would keep Bitcoin range-bound between $5500 and $7500 until March 2019. This is quite the likely position, especially considering the length of the Mt. Gox correction with the long sideways trend before entering into Wave 3. Traders can look to play the bounces and pullbacks within this range until Wave 5 begins.

The final possibility is an early breakout before hitting the trend channel support line which would lead us into an early Wave 5. This seems to be the least likely course of action at this time given the tremendous selling pressure that Bitcoin incurs on every breakout attempt. Though it has resulted in an ever-tightening range, the result of which is a descending triangle. This is not favorable to the bulls case, but rather the bears. 

The truth is - no one can predict where Bitcoin is going to go. All we can give are probabilities. This does give traders the ability to prepare for each possibility accordingly so that rather than being surprised they know where the price action is likely to lead. Such is the state of Bitcoin and, at this time, all we can do is watch and wait.