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Bitcoin (BTC-USD) has been bleeding for months due to tight liquidity conditions and targeted selling of high beta technology stocks. Low interest rates since the global financial crisis in 2008 have led markets to reach extreme valuations. Now, the decade-long bubble has popped, and assets are moving back to reality.
For most of Bitcoin’s existence, it has benefited from low interest rates. With rates now rising, Bitcoin’s price is suffering from the resulting uncertainty. In the near term, Bitcoin’s Wave 3 Elliott extension is signaling a crash to $21k. In the long term, Bitcoin’s Price Cycle outlook implies an 80% crash to $14k.
Bitcoin All-Time Chart (TradingView 5-11-22)
At BitFreedom Research, we believe the activities of the past 2.5 years will be remembered as the second dot-com bubble. The bubble popped in November 2021 when Bitcoin reached $68,990. Going forward, persistent sell pressure should kill any elements of the cryptocurrency market that do not provide tangible value.
While the underlying internet technologies that powered the turn of the millennium dot-com bubble were solid, an overabundance of investments into the space caused an eventual crash. This same process has afflicted the cryptocurrency market, and the crash is occurring right now:
LUNA, First Collapse Of The Crypto Crash (TradingView 5-11-22)
By following the same rules that dictated the dot-com crash, we can infer there will emerge oligopolistic winners that grow to dominate each Web 3 sector. According to our own analysis, the following cryptocurrencies are the most likely to survive and thrive long into the future:
If we believe these projects will succeed, then it follows that there will a be a point of maximum opportunity (a bottom) at some point during the present bear market. To find potential bottoms, we are using Elliott Wave theory combined with Bitcoin’s Price Cycle theory.
Bitcoin Elliott Waves (TradingView)
Looking at Bitcoin’s daily chart, the asset is currently moving in Wave 3 (the most powerful wave) of its long-term corrective phase. Wave 3 typically extends 1.618 the length of Wave 1. When charted, this Fibonacci extension implies Bitcoin will crash to $21k.
With Bitcoin in Wave 3, this implies a deeper move into Wave 5. To analyze how low a final Wave 5 can push Bitcoin, we are studying data from the asset’s previous 2 price cycles.
After each parabolic run-up, Bitcoin has decreased from peak to trough by 80% approximately 1 year later. According to this movement, Bitcoin should reach $14k between October-November 2022.
Bitcoin Price Cycle Analysis (TradingView)
A major difference between the current crypto bubble and the previous dot-com bubble, is that the speed of the internet should make crypto’s drawdown and recovery occur much faster. Due to this, we expect the entire cryptocurrency crash and bear market to conclude near the end of 2022. In accordance with how bubbles typically pop, a dip below Bitcoin’s baseline growth trend (identifiable through the 200-week simple moving average) can take Bitcoin as low as $14k.
From a conceptual perspective, Bitcoin is currently in the Fear/Capitulation zone of the ‘Stages in a bubble’ diagram. Since Bitcoin’s previous bull run was so long and unhinged, toxic aspects of the market now must die before everything can heal.
Stages In A Bubble (Hofstra University)
The following bad actors represent Greed, Delusion, and New Paradigm practices that are typical of asset bubble tops. We expect each of these enterprises to collapse in the coming months:
Going forward, each of these enterprises should die as Bitcoin returns to its baseline growth rate (the 200-week moving average).
This article was written by
Disclosure: I/we have a beneficial short position in the shares of BTC-USD, ETH-USD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.