Technical analysis is the study of historical price action in an attempt to forecast future price movement. The assumption is that history tends to repeat itself and that human emotions such as fear and excitement can be predictable. That’s why technical traders and investors rely heavily on price action, volume, and other indicators to get a glimpse of where the market is headed.
We attempt to do the same for Bitcoin (BTC/USD). 2018 has been a difficult year for the cryptocurrency. The bear market has seen Bitcoin lose over 54% of its value year-to-date. Many are still predicting that we have yet to see the bottom of this downtrend, causing fear and uncertainty in the market. However, is there actual technical evidence of more downside potential?
In this article, we answer that question by comparing the 2014 and 2018 bear markets.
Bitcoin Falling Wedge Retracement
The bear markets of both 2014 and 2018 were contained inside large falling wedges.
Bitcoin climbed as high as $1,175 on December 4, 2013 before showing signs of bullish exhaustion. The cryptocurrency then traded in a downward spiral, generating a series of lower highs and lower lows. The cold winter lasted for a little over a year before it finally bottomed out. Throughout this bear market, Bitcoin traded inside a falling wedge.
2014 falling wedge
We’re seeing the same pattern in this year’s bear market. Initially, a large descending triangle pattern was seen on the daily chart. However, the true pattern emerged as the bear market started to create a series of lower highs and lower lows inside the wedge.
2018 falling wedge
With this development, we can see a crucial similarity in the market psychology between the bear markets of 2014 and 2018.
Bear Market Wave Counts
We define wave counts as the lows and highs of the bear market. It is not related to the Elliot wave counts in any way. With that being said, the 2014 and 2018 bear markets are showing a remarkable similarity in the number of wave counts before bottoming out.
2014 wave counts
Throughout the 2014 downtrend, Bitcoin had a total of 11 lows and highs before bottoming out. Once the bottom was in, the market rallied and eventually broke out of the falling wedge. We’re seeing the same number of waves become apparent in this year’s downtrend.
2018 wave counts
So far, this year’s bear market has given us a total of 11 highs and lows. The eleventh wave appears to have signaled that the bottom is in. Currently, Bitcoin is attempting to break out of the pattern. However, bears are working really hard to keep market control.
Will bears succeed and turn downside potential into reality? Again, we compare the two bear markets to look for clues.
Long-term Support Intact
Bitcoin has the notorious reputation of faking out and shaking you out. With this crypto, you have to expect the unexpected. Therefore, it may come unexpectedly to you that Bitcoin actually respects its long-term support.
2014 long-term support
Between April 2013 – September 2015, Bitcoin relied on its long-term support to keep the market alive. Throughout this period, the market bounced off this support level six times. This goes to show that Bitcoin is being defended perhaps by a whale or by everyone in the market. We’re seeing a similar phenomenon in today’s bear market.
2018 long-term support
Since March 2017, Bitcoin has relied on this long-term support to keep the market afloat. Throughout this period, the market has bounced off this level four times. Again, we are seeing that Bitcoin is being defended. In yesterday’s selloff, we saw the market immediately bounce after touching this support. This type of defense gives us confidence that the bottom is already in.
While crypto bears are still harping the demise of Bitcoin, this comparison reveals that the cryptocurrency is in good shape. Bitcoin appears to have already carved a bottom and things are looking rosy even after yesterday’s selloff. So I ask the bears, what is this downside potential that you’re talking about?
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