BTC: How Long the Correction?

Dear Readers,

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A general malaise seems to now be setting in after the initial shock of lower prices in BTC. Where before a quick rebound was expected, many market participants are beginning to acquiesce to the idea of an extended correction. The most relevant question facing us presently, besides the depth of the correction [price], is the length of the correction [time]. Given price prediction is not telling the future but extrapolating perceived patterns, we must look to the chart for the signals and suggestions that price will take. This is also to say that we must also try to keep at arm’s length the narratives and paradigms that all too often hold sway over us. And though it’s true that we’ll inevitably bring some kind of theory into play in our interpretation of the trend, at least we can discard various other theories, narratives and paradigms that have proven erroneous in order that our preconceptions can be both a little less cluttered and a little more critical.

Twitter followers of mine are no doubt familiar with my [fallible] price prediction of BTC down to the 25K odd area. What I think is significant in this call is that though it seemed awfully low a while back, that level is now within striking range of a market still in the corrective mode, that has yet to break out of an extended downward channel. One further capitulation down, and a wick could well hit it. And yet also predictable [and was predicted] are the burgeoning calls for ever lower prices once the down-trend is confirmed [where were these calls at the top?]. Just as important as depth/ price at this particular juncture is the length/ time of the correction. This is because if a year long ‘bear market’ is assumed, investors yet looking to buy may hold off from buying the proverbial dip with ever better buying prices anticipated. With this in mind, the aim of this article will be a focus on the time element of the correction. As opposed to looking for some certainty [though all for reasonable belief], this article will seek to throw some doubt on the idea of an extended ‘bear market’ in order that prospective buyers might not overly rely on it, and that holders might not in turn become too anxious of it.

The only certainty in this market seems to be change. At every step along the way, the generally prevailing view toward price development has been invalidated. Though technical analysis is generally the extrapolation of trends, it’s also limited. Take too literal an approach to it, especially on the shorter time-frame, and your prognostications are likely to back-fire. It’s my belief that the longer the time-frame of your TA, the more veracity it’s likely to have with a higher probability of eventuating [interestingly, this is the exact opposite of what many analysts think]. Applying this principle - even though the multi-year cycles seem to be long term, in a relative sense, they are not the longest term. Longest term TA borders on modelling the whole of price development, and accordingly the LGC is an example of this. In the context of the longest term time-frame [the LGC channel], cycles belong to medium term analysis, and therefore have a higher likelihood of being invalidated [as compared to the longest term]. This distinction between the longer and medium term is one I drew early on here. On the basis of this distinction, it was predicted that cycle analysis had a higher probability of failure. I think we are currently seeing that failure playing out. Of course, I am not making a case out for the ‘bears’ here, but am rather more interested in stating that the bull case does not have to be tied to cycles at all. Given that most bulls have the cycles in mind [now a problematic paradigm] as the rationale for their bullish stance, once a continued so-called cycle becomes increasingly untenable, their bullish stance could well become increasingly irrational. And though the ‘animal spirits’ may well cling to the bull, they could also flip to the bear in a moment of panic… and right at the wrong time. What’s needed is a rational re-assessment of the bull case, one that allows for the possible demise of cycle theory while putting in place a more solid scenario that can provide a better buttress for the macro bullish belief.

First of, and assuming a 4 year cycle for the sake of argument, we have the most bearish case - a 1 year correction to the 21K area [38% real decline of move up, and back to the base of the LGC].

I consider this my worst-case scenario. However, given that it simply repeats the previous pattern of ‘cycles’ stretching back to the beginning, this may make that target a little problematic. What I’m referring to here is a ‘qualitative’ difference in this market [compared to previous ‘cycles’] as it becomes increasingly liquid/ mature. The past few years have shown a price dynamic that is quite out of keeping with the ‘cycle’ that preceded it. Price now looks a lot more irregular with mini parabolic runs and corrections that punctuate or break up the old notion of a nice neat cycle [that’s assumed to be driven by the halving event]. It’s as if the market itself is now in the process of taking over as the driver of price, which is exactly what you’d expect in a maturing market. You now see something more like shorter speculative runs followed on by the corrections of them. In the macro, you see decreasing volatility [in ‘cyclical’ terms] and accordingly a less predictable comparison to the past. With this in mind, the current correction could well turn out less severe, and of a shorter duration, than what the mass of market participants will generally come to expect. And just as the parabolic ‘blow-off top’ was missing this time round, so too may be that deep dive right into the base of the LGC as seen previously. And so zooming in a bit on the chart below, we can see this relatively recent price action that has broken with the previous pattern of grand multi-year cycles [something I looked at a year ago here].

Insofar as the comparison of grand cycles are becoming redundant in an increasingly liquid market, a more traditional technical analysis will no doubt increasingly come to assert itself [and one that conventional/ institutional money is more familiar with]. The metrics that carry the most weight have to be the longer-term ones capable of looking at the more medium-term time frame [relative to multi-year ‘cycles’]. These are the tried-and-true well-known indicators factoring in conditions such as momentum and whether a market is over-bought/ oversold etc. In the chart above, the MACD [this has to be in log scale] comes to bear on the monthly time-frame. What is of most significance here is the time factor - it signals the lowest price and completion of the correction as early as May. Factor in that the most severe capitulation event might not occur [in symmetry with the lack of a previous blow-off top], and those lowest of targets look less likely. And so finally to the weekly chart to see what kind of target this way of proceeding might give us.

In the first chart above, wider ‘cycles’ are disregarded. The focus is rather on a comparison between the two parabolic moves, a comparison in terms of both magnitude and time [the intervening move considered a ‘re-set’]. Similar to the previous move, the MACD has run to the top of the macro downward trendline [representing reducing macro volatility, diminishing returns, and a process of price discovery] with the expectation that it will move lower to near previous levels. This further move lower is reflected in the fib comparison, where a further correction of one more fib level [to the 0.38] is expected. 25K may not be the prettiest target, but neither is it the ugliest. The time-fib comparison [0.78] once again gives May as the low as was reflected earlier in the monthly MACD. Though the weekly MACD is currently showing a sign of strength, with a contracting histogram, it may just turn out to be a short reprieve before the next and final move down.


And there we have the technical picture according to Dave the Wave. Even if one thought the bottom is in now, nothing ‘objectionable’ could be found in my analysis. TA is what it is, and is to be found in the murky world between fact and fiction. If it were found objectionable, the cause would no doubt lie in the eye of the beholder rather than the material. This is due to the fact that technical analysis of past price development for the purpose of finding some insight into future price development is by its very nature obscure. This is not to say we can say nothing of future price utilizing TA, but rather that anyone desiring too much precision or clarity toward it [or dismissing it due to the lack of such] is not even in the ballpark. And a [well-hedged] ballpark is the right analogy, for in doing TA we’ve a range in mind, and engaged in a game of sorts, where we’re never too dogmatic about the outcome. But play the game we must.

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.