Bitcoin: Bear Sentiment Confirmed, Elliott Wave Invalidated (BTC-USD)

Thesis

In my last piece on Bitcoin (BTC-USD) I gave Bitcoin a bullish rating as the coins chart still exhibited an Elliott Wave and was trading in a bullish channel. With uncertainty in the markets amid inflation and Fed rate hikes, the broader markets have been punished. That said, Bitcoin prices collapsed, breaking critical support levels that needed to be held to validate the Elliott Wave and bullish sentiment on the cryptocurrency.

Elliott Wave has been invalidated

There was some debate in my comments on my last piece regarding whether or not an Elliott Wave was even in form. I would like to say that Elliott waves are not always perfect in terms of guidelines and observations. The first issue addressed in my comments regarded the fact that wave three cannot be the shortest wave. This is accurate, and wave three was shorter than wave one. However, wave five can be the longest wave, and when trying to predict a movement based on wave structure you cannot invalidate a theory because it hasn’t happened yet. It’s obviously easy to identify Elliott Waves once they’ve already occurred. In the case of Bitcoin, a fifth wave larger than wave three would have validated an Elliott wave. The other concerns regarded the guideline stating that wave four’s pullback cannot enter the territory of wave one. This is correct in the most basic of Elliott Waves. However, when observing diagonals, particularly leading diagonals, wave four can in fact enter wave one territory without invalidating an Elliott Wave. Bitcoin’s candle chart did exhibit the slightest leading diagonal. It’s quite hard to identify as the trend lines are almost perfectly parallel.

Now that I have addressed concerns in my previous piece, I will point out a basic Elliott Wave guideline that cannot be justified with nuances or observations. That is wave five cannot break below the low created in wave four. With the devastation in the markets today, that’s exactly what occurred, invalidating the potential for an Elliott Wave in Bitcoin’s candle chart.

The chart above shows that the critical support level of roughly $33 thousand was clearly broken. This invalidates the potential for an Elliott Wave. I also placed trend lines from waves one and three as well as two and four to demonstrate the leading diagonal that kept the potential for an Elliott Wave valid as wave four entered the price territory of wave one. Either way, it doesn’t matter now as the low created in wave four has officially been broken. When considering the inflation, Fed rate hikes, the performance of the Dow, and S&P, this comes a particularly bearish price action for Bitcoin.

Additional Bitcoin support levels to monitor moving forward

Below is a chart of various support levels to monitor moving forward. Inevitably, I believe the break of the $33 thousand support is significantly bearish, especially when considering the conditions of the broader market.

I can’t say how far Bitcoin will fall, however, the following support levels aren’t entirely favorable for those who are long. Bitcoin managed to avoid breaking through the $29 thousand support level for now. Should it break $29 thousand, the following support levels are $26.4 thousand, $23.6 thousand, and $19.3 thousand. I’m not going to say that Bitcoin is completely down and out; it could swing up above $33 thousand and continue to consolidate. However, things are looking good as of now. At the current trajectory Bitcoin appears to be heading towards a price channel around $23 – $26 thousand.

Some positive aspects to consider

All of my pieces on cryptocurrency have been positive, as I do believe there is use-case potential in many crypto projects. That said, I do think there are some positive aspects to consider following the blood bath in the market today. First, the crypto markets are extremely volatile in nature. For those seasoned in the crypto market know that significant price movements can occur on a whim. Whether it be broader market troubles, liquidations, news from China, or almost nothing, what occurred today is not out of the ordinary. The crypto market has experienced this before and prevailed. The second is that Bitcoin was consolidating at prices above $30 thousand for quite some time. Prices weren’t flying through the roof, but they were remaining stable. Considering the economic conditions observed, Bitcoin’s price movement isn’t unwarranted. My point is that Bitcoin’s price action isn’t behaving irrationally compared to the broader market. I do find this to be a positive characteristic of the pullback seen in Bitcoin’s price. The third is the fear and greed index on Bitcoin. Bitcoin’s rating is in the ‘extreme fear’ range with a score of 10. The scale ranges from 1-100, with 1 being the most fearful and 100 being the greediest. The greed and fear index is quite accurate in terms of determining a security has been oversold in ‘extreme fear’ ranges. Considering Bitcoin is already in the ‘extreme fear’ range with only 9 points to go before the floor, it’s likely the bleeding will taper sooner than later. Additionally, Bitcoin’s stochastic relative strength index (RSI) is below 8, also indicating that it is significantly oversold.

My recommendation for Bitcoin investors

My recommendation for Bitcoin investors will vary depending on the average cost. For the true long-term enthusiasts, especially those with a high average cost, holding will likely be the best option. For those who have an average cost basis below $23 thousand it may be wise to take profits now, as it is very possible you’ll have the opportunity to re-enter at similar or lower levels if market turmoil persists. I am currently cutting my ‘buy rating’ on Bitcoin to a hold/sell. While I’m not completely bearish on Bitcoin, it’s wise to take advantage of the price swings in the crypto market. I do believe cryptocurrencies will rebound as the broader market stabilizes, however, the short-term outlook is quite bearish. For those in the profit, I recommend taking profit, for those with substantial unrealized losses, holding for the long haul will likely be the best play.

Conclusion

In conclusion, The Elliott wave on Bitcoin’s candle chart has been invalidated with the break below the $33 thousand support level (the low created by wave 4). This is a strong bearish indicator, especially when considering the poor condition of the current market (inflation, rate hikes, falling indexes). The support levels identified in the chart above should be monitored closely to gauge price action and potential trading points for day traders. I still recommend holding for those in the red, especially if unrealized losses are large. I do believe the crypto market will rebound in time as it has in the past. For those who may be profitable, it is likely wise to take profits and look to re-enter at similar/lower prices. Nevertheless, Bitcoin’s price action today has confirmed strong bearish sentiment.