Bitcoin: Two Medium-Term Price Scenarios Going Forward

Dear Readers,

Mount St. Helens - Wikipedia

After another tumultuous couple of weeks in the market, time for another more practical article after the theoretical one previously. I’ll look to sketch out a couple of more medium-term scenarios for Bitcoin price action going forward. I say ‘sketch’ as that is all we can do with TA that inhabits a kind of middle ground between certainty and chaos called the game of probability. Those with the fortitude to take on risk [and the idea of] will closely consider TA, those that are risk-averse will run a mile… or worse, take on risk unknowingly while listening to fairytales. It also inhabits that middle ground between the ‘anything goes’ crowd [that completely writes off TA] on the one hand, and the mere reflection of the strident hyper bull/ bear beliefs on the other. More often than not, these two are two sides of the same coin - fundamentals/ FA encroaches on the field of TA and looks to trample all before it. TA, however, looks to take a more disinterested look at price action, and that alone insofar as it’s a discipline with its own set of rules and conditions.

Of course, the mapping of the more medium-term price direction/ volatility is open to interpretation as there is less probability involved on the relatively shorter-term time-frame… as compared to say the long-term model of the LGC [Logarithmic Growth Curve]. Where the higher probability of the LGC has a converging channel within which price can roam to both sides [while potentially being invalidated in the breaking of that range], the medium term looks to map the price direction in the not-too-distant future. Accordingly, in looking to predict possible price movement within the LGC [shorter-term volatility], it has a higher probability of being invalidated. And this is fine, for TA is there as much to be invalidated as to be validated. There should be no fear of ‘being wrong’, or no recriminations for being such, for we are here in the realm of a speculative game as opposed to that of say serious clairvoyance. Of course, you’d hope for the greater weight of your TA calls to fall on the positive side. And this is how TA is to be evaluated, not whether some call turns out to be ‘wrong’… especially after a good track record. Those evaluating TA on those terms are at best only ignorant toward the actual value and worth of TA.. or worse, positively hostile to it as they see actual/ realist TA as subversive to their hyper-bull belief of an imminent moon. First a review of the LGC.

Predictably [on the basis of the LGC], price so far looks to have topped out just beneath the upper range for now. Never before has price stayed this elevated within the top half of the LGC range for so long. This combined with the lack of the long looked for ‘blow-off top’ signals a changing market dynamic in my opinion. Where a less liquid, less mature market saw blow off tops and greater macro volatility in perceived multi-year ‘cycles’, this is no longer a ‘given’. Price action is showing a changing dynamic, and this seems perfectly reasonable given that the market is now more liquid/ mature [of course, the reason that most are still locked into the idea of ‘cycles’ is itself explicable by the notion of paradigms - the paradigm exists like a set of spectacles through which we interpret/ view everything. It takes quite some time for the generally accepted paradigm to be dislodged, indeed, anything beyond it seems ‘irrational’ for the prevailing paradigm is how we make sense of things as a collective]. A further positive of this changing dynamic, with price remaining high here, is that a complete collapse of price into a prolonged ‘bear market’ is less likely - those projections/ fears of multi-year bear markets may themselves also belong to the old paradigm. This line of thought is perhaps best supported by the fact that the MACD is relatively low and consolidated near to the zero-line as is seen on the above chart. Having looked at where price is situated in the LGC channel, which, whatever way you cut it, is a macro bullish picture, I’ll now sketch out two more medium-term price scenarios. It should come as no surprise that the two are contradictory, for they are to be considered useful fictions [along with all scientific theory]. Only uncritically-minded TA ‘illiterates’, who cannot hold ideas at arm’s length, take exception to this. On the one hand, the naïve of this group tend to be disappointed, having once had too great an expectation of what TA can do; on the other hand, there are the hyper-bulls that resent all realistic analysis [in this case, realistic price analysis]. Realist TA recognizes the limits.

The ‘Bull’ Scenario

In the ‘bull’ scenario, price remains in the upper echelon of the LGC. The previous highs have established the benchmark with price continuing to test it over a period of time as it’s already done recently. When price eventually does break higher, it’s envisaged to be a measured move, and one that’s also capped by the upper limit of the LGC channel, from where price would once again correct. Technically, this could be could be considered a ‘lengthened cycle’, but it would be more reasonable to think that ‘cycles’ are themselves diminishing/ breaking up - it’s a basic principle of increasingly liquid/ mature markets that they become less volatile in the macro. Besides, what would come next? A 6 year cycle, and then a 7 year cycle? Highly unlikely. The heavy dotted white line, connecting base to following base to peak, further corroborates a price level at that approximate time and level - a triangulation of sorts between this line, the fib extension and the LGC top. Of course, this more definite price projection in the relatively shorter-term is highly speculative… just as investment in Bitcoin is, especially at these levels, which brings us to the ‘bear’ scenario.

The ‘Bear’ Scenario

I ‘interrogate’ the word bear as from the longer-term macro perspective it is hardly bearish at all. For those that had bought in the lower range, and for the longer term, a solid correction within the parameters of the LGC remains bullish - the LGC model is a bull model. It’s point of difference from some other models is it advocates discrimination toward your buying levels. Buy low, and you’ll be rewarded; buy high, and you’ll be punished. In this scenario, I put on my bear hat for a moment, and practice risk management, for at the end of the day that is what technical analysis is… or should be. And so the chart, which pulls no punches.

Mount St. Helens - Wikipedia

Here the over-riding and admittedly obscure idea [given the nature of our subject] is a different reading on the conventional assumption that bull markets culminate in ‘blow-off tops’. Consider this the ‘worst-case’ scenario. The blow-off top we see in the chart above [and the picture] is quite a literal one, where the top is blown off/ missing. It misses the top many expected by comparing the present run to the previous one [and hence the comparable triangles]. Why we might see this kind of a ‘blow-off top’ comes back to the principle of increasing liquidity = diminishing volatility as mentioned earlier. If this were the line of resistance going forward, then a slow grind down as comparable to last time is foreseeable though I doubt quite so far down due to diminishing macro/ cyclical volatility. The development of a possible head and shoulders [, in the scenario, might not see price going quite so low into the bottom band, and so a target of 25K. From a nominal perspective - one that focuses solely on the unit/ price - this may see awfully low, but from a real perspective - real values that focus on the relative move in logarithmic/ geometric terms - 25K is still high and only a 50% correction of the recent parabolic rise. A re-test of only the recent lows, on the other hand, would see a 38% real correction [chart 2]. Of note also is that such a correction could well play out over the course of the first half of next year.

Chart 1
Chart 2

Summary of the Shorter-Term Scenarios

The reader may be left scratching their head and saying ‘Dave, how does it help to say price could go up or down?’. To which my answer would be two-fold:

1] Shorter term

As I often say, shorter-term volatility is as a drunken dog - drunk on its senses, its movement is unpredictable. However, it is also on the long leash that brings it back into line. And that line is the trend as analyzed by rational TA, where price does not become a completely random walk but one with a direction. In our context here, the leash/ rational TA on the longer-term is the LGC channel. Price within the LGC channel can move more randomly [while also susceptible to a pattern in hindsight], and hence the two scenarios in keeping with previous price action. It could well be the case that what actually eventuates over the course of the not-too-distant future is something in-between. Even so, our somewhat fanciful exercise here fulfils the following.

2] Risk management

Insofar as technical analysis is realist [as opposed to cheerleading the market sentiment] it is its job to be risk analysis. What the scenarios above give you is risk management to both sides - to the upside and to the downside; for those that as yet have no Bitcoin [or Crypto] position, and for those that are also heavily exposed. It provides a range of feasible possibility in order to manage your exposure… or lack of it. The fact is Bitcoin is a highly speculative market, which is both a positive and a negative. Speculation is the means by which it is further capitalized. It is also why it may go through a series of bubble-like episodes where price heavily corrects after first expanding exponentially [further on this here ].

General Summary

The shorter-term scenarios as depicted above would be considered by most to be on the medium-term time-frame. ‘Shorter’ is always a relative term, and these scenarios are relative to the shortest-term day chart and the longest-term LGC channel. You could say the day chart and the long term LGC chart ‘book-end’ the medium-term scenarios as mapped out above. And so to finish, the charts on those time scales, where price would first have to break the current uptrend on the daily chart for the scenarios above to even begin playing out. As for the LGC itself, as a long term model it has performed and is continuing to perform very well. Both medium-term scenarios are considered macro bullish in the context of the LGC model, for all bull markets climb a wall of worry.

Shortest Term Daily Chart
Long Term LGC Model

For more on investing and trading the alt coins, feel free to enquire via a DM to my Twitter account - @davthewave

Until next time,

Stay [relatively] safe out there,

Dave the Wave.