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Bitcoin (BTC-USD) has seen some robust swings from the end of FY20 to now. The price of Bitcoin has seen tops close to $70,000 per coin with lows under $30,000. Crypto is volatile and risky but has garnered much love and attention from a broad market of investors. Bitcoin’s price has been consolidating since the start of 2020, leaving crypto investors questioning the path Bitcoin is on. According to technical analysis—particularly the Elliott Wave Theory—I believe Bitcoin is going to have a strong bull run over the next couple of months.
I won‘t go into depth on the Elliott Wave Theory. For those that aren‘t familiar, it‘s a theory of five price swings that can be identified by viewing candle charts. The theory has been used with stocks and has been very useful in the crypto market, as cryptocurrency price predictions are completely derived from technical analysis. Waves one, three, and five are upward swings, with waves two and four being pullbacks. The high in wave three must be higher than wave one; the high in wave five must be higher than wave three. The low in wave one must not go lower than the initial price in which the upswing began. The low in wave four must be higher than the low in wave two. The wave theory looks like a standard bullish stock chart. I will now provide a chart I made outlining how the Elliott Wave Theory is taking shape in Bitcoin‘s chart.
Bitcoin appears to be on the fifth wave of the Elliott Wave Theory (Made by Author) (tradingview.com)
Here we can see wave one creates a new high and is followed by a wave two pullback that doesn‘t fall below the level in which the first wave started. Wave three creates a new high followed by wave four that creates a higher low.
As of now, the Elliott Wave is taking shape on Bitcoin‘s chart. The low of roughly $33,000 in wave four cannot be broken or the theory will be invalidated. A break below $33,000 would be a strong bearish indicator.
Below is a monthly chart of Bitcoin‘s price action. The price movements in waves two and four were identical. The price movement in the hypothetical fifth wave is currently following an identical path to wave three‘s upswing. While this doesn‘t technically indicate anything, I think it‘s worth addressing.
Waves are following identical patterns on the monthly chart (Made by Author) (tradingview.com)
As you can see, waves two and four are each three-month pullbacks. Wave three exhibits two months up, one month down, and a final strong month up. We‘re three months into the hypothetical fifth wave, and it‘s following suit. If the pattern continues, the month of May should be rainbows and sunshine for Bitcoin investors. Keep in mind that Bitcoin isn‘t necessarily in trouble if it doesn‘t shoot up in May, so long as it doesn‘t break the low of the fourth wave (roughly $33,000). However, based on the chart, I personally will be intrigued to see Bitcoin‘s price action this coming month.
As the Elliott Wave remains intact, I remain bullish on Bitcoin. Below is a chart I made using the Fibonacci extension tool. It outlines extension and retracement levels to identify potential price targets based on previous price movement.
Bitcoin’s Fibonacci extension levels (Made by Author) (tradingview.com)
I apologize if the figures are hard to see; however, I‘m eyeballing the 1.0 extension level. I believe it‘s the most realistic as the high created in wave three wasn‘t much higher than the high in wave one—roughly $5,000 higher. The 1.0 Fibonacci extension would be $78,632.54. I personally believe the fifth wave high would be in the area of $74,000. This would represent an upside of roughly 86% from the time of writing. Also note the horizontal blue lines running across the chart. The blue lines above the current price are levels of resistance, while the blue lines below the current price are levels of support. Price movement below levels of support are bearish indicators, while price movements above levels of resistance are bullish indicators.
Additional bullish sentiment for Bitcoin is the executive order passed by Biden last month promoting financial regulators to evaluate how to regulate and integrate crypto assets into the broader financial market. In short, I believe regulation will reduce volatility, illicit activities facilitated with crypto, and attract investors that have been hesitant pertaining to the lack of regulation in the crypto market. I‘ve addressed this in past crypto related articles but want to mention it for any potential new readers. If you‘d like to read more about my take on Biden‘s executive order on crypto, give my last piece on Bitcoin a read.
The risks involved with an investment in Bitcoin are quite prevalent. The crypto market is extremely volatile, which can cause serious damage when the swings aren‘t in your favor. They also happen out of nowhere and very abruptly. If you‘re considering investing in Bitcoin, I highly recommend implementing stop-losses to best protect your capital. It‘s also worth noting that the crypto markets don‘t sleep; the market is open 24/7.
Lack of regulation and/or any potential crypto bans are another risk. When China recently announced it was banning cryptocurrencies, the crypto market went into a frenzy. Any political news could have a great impact on your crypto assets; thus, you should monitor crypto-related news frequently. This entails all news, both national and international. Staying on top of the news can help you avoid price swings from bearish sentiment and capitalize on the swings from bullish sentiment.
Security and password management can also be risks. Have you heard about the guy in the U.K. that threw away a hard drive containing upwards of $500 million worth of Bitcoin? You don‘t want to be that guy. First and foremost, make sure you keep secure and accessible records of your passwords, keys, and seed phrases. I recommend keeping highly secure digital copies and tangible paper copies. It‘s one thing to get robbed, but to rob yourself would be particularly painful. This leads me to security. If you own cryptocurrencies and don‘t have two-factor authentication (2FA), you need to get it. I personally use Google Authenticator. Also, if you‘re about to sell your phone, make sure to retrieve you 2FA codes before doing so. I also recommend general PC security with the likes of a VPN. I use Norton 360, which comes with a password manager/vault, VPN, identity protection, cloud backup, malware protection, and virus protection. The annual subscription may not be fun to pay but losing thousands of dollars in cryptocurrencies would likely be worse.
In conclusion, the Elliot Wave remains intact on Bitcoin‘s chart. Bitcoin has been consolidating in the high $30,000 range for quite some time; we will likely see some price action soon. According to the Elliott Wave Theory, Bitcoin is still working in a bullish channel. A break below $33,000 would be a strong bearish indicator, invalidating the Elliott Wave Theory as well as my bullish stance. I believe price action is going to turn bullish here soon; a break above $45,000 would be particularly bullish, as that is the first key level of resistance. If the Elliott Wave Theory stays course, I believe Bitcoin will achieve a new all-time high in the area of $74,000.
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Disclosure: I/we have a beneficial long position in the shares of BTC-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.