March 28, 2023

Bitcoin by Ross Ulbricht: another wave of growth or continued correction?

In previous posts, I talked about Elliott Waves, one of the methods of technical market analysis, and outlined the big picture of the soaring price of bitcoin. Today we will take a closer look at what seems to me to be a continuation of the 5th and last primary wave as part of the first main (cycle) rising bitcoin wave and will try to understand how fair my assumption is.

We know where wave ⑤ began: with the end of the wave ④, the lows formed in 2015 at the level of ~ 175 $. After that, over the course of three years, we have observed exponential growth up to the last price maximum of ~ $ 20,000 (see Fig. 1).

Fig. 1

This wave has attracted the most attention.mainstream. By the end of it, Bitcoin was literally on everyone’s lips and optimistic about the prospects for its adoption and the future price went wild. After that, the price of bitcoin formed a correctional pattern lasting about two years.

⑤ wave structure can be interpretedin several ways, each of which implies different consequences. But first, let's look at the movement from the end of the wave ④ to the peak values ​​of ~ $ 20,000. It is not easy to calculate intermediate subwaves in this case - so many applicants for this title can be observed there. I counted no less than 15. It is clear that we are dealing not only with the “expanded” third wave (I touched on this topic here), but also with the “extensions” inside this “extension”. Fortunately, we don’t need to know the exact number of ⑤ wave subwaves in order to make some useful conclusions about it.

What we can be sure of is thatthe movement from the end of wave ④ to $ 20,000 is not an intermediate wave (1) in wave ⑤. It is too large in comparison with the previous medium waves - both in duration and in the price range. Therefore, if the sub-wave (1) of the wave ⑤ ended before the peak of ~ $ 20,000, then this should also apply to the downward wave (2). Then either wave (3) should deliver us to the top, or, if it turns out to be short, waves (4) or (5) will do it.

Fig. 2

If ~ 20,000 $ peak represents the endwaves (3), then the correctional pattern in which we are (or have just left it) is wave (4), which means that we can expect the formation of (5) waves, which should lead us to a new historical maximum (see fig. 2). However, if this peak is the end of wave (5), then it also marks the end of the primary wave ⑤, the last in the composition of the main wave I. This interpretation implies that the correction we are in will be the largest in the history of Bitcoin, since it’s time to count movement follows from the very first days of its existence (see Fig. 3).

Fig. 3

There are three factors that we need to recognize andwhich will help us determine what value should be given to each of these possible interpretations. The first two relate to the size and shape of wave ⑤ in comparison with the other two pulsed waves in cycle I: waves ① and ③. The third concerns the wave structure after the formation of a peak of ~ $ 20,000, and at this point I am going to dwell in detail a little later.

First, let's pay attention to pricewave ranges ①, ③ and ⑤. Wave ① started at $ 0.06 and ended at ~ $ 32, which means an increase of 53,000%, or ~ 530 times. Wave ③ started from ~ 2 $ and ended at the level of ~ 1240 $, which means an increase of ~ 620 times. Wave ⑤ started from ~ $ 175. If we consider the peak of ~ $ 20,000 to be the end of wave ⑤, then the price within this wave has grown by ~ 110 times. This is a huge indicator for almost any other asset in history, but it is only a small part of the price ranges of waves ① and ③. Assuming that the price movement of the ⑤ wave should be commensurate with the ① and ③ waves (an increase of 530–620 times), this implies the formation of a peak at the level of $ 93,000 - $ 109,000. Thus, if we adhere to the interpretation that ⑤ the wave is not finished yet, and ~ 20 000 $ maximum was only the peak of the wave (3) in the wave ⑤, then a good target value for the wave (5) from the wave ⑤ will be ~ 100 000 $ ( see fig. 4).

Fig. 4

Now let's pay attention toduration in time of waves ①, ③ and ③. The wave ① began on October 1, 2010 and lasted until June 9, 2011, i.e., ~ 251 days. Wave ③ began on 11/18/2011 and lasted until 11/29/2013, or 742 days. Wave ⑤ began on 01/14/2015. If we consider the peak of ~ $ 20,000 as the end of wave ⑤, then it lasted until 12/17/2017, or 1068 days.

Of the duration of these three primary pulsedwaves, we can conclude that with time it increases. Two primary corrective waves (② and ④) also showed an increase in duration. This is accurately determined even with a quick look at the full history of bitcoin prices on a logarithmic scale: price fluctuations as a whole take more and more time (see Fig. 4).

This begs the logical question: and at what rate does the duration of price fluctuations grow? The answer to this question would allow us to calculate the estimated completion date of wave ⑤ and, therefore, wave I. When comparing the duration of wave ③ with the previous impulse (wave видно), it can be seen that wave ③ lasted ~ 3 times longer than ①. And if we compare the duration of the wave ④ with the previous correctional wave ②, it can be seen that the wave ④ lasted ~ 2.5 times longer than ②. If we assume that wave ⑤ is not yet completed and follows this pattern, being 2.5–3 times longer than the previous impulse (wave ③), then it should end between 01.12.2019 and 02.17.2021 (see Fig. 4) .

Thus, we obtained the target values ​​forprices and completion dates for wave I: ~ $ 100,000 and ~ 2020. However, there is no such rule that market movements must be proportional. This is just a pattern that we are observing. It may go on, but it may not. It is also worth noting that these estimates are based on indicators of the price of bitcoin in the distant past. In addition, the best data that I could find while in prison are not too accurate. And, of course, if wave ⑤ has already ended, then the targets we have received have no effect.

The closer we come to our analysisToday, the more uncertainties arise about how current prices fit into the more general Elliott wave model. The main question is whether the current price maximum of ~ $ 20,000, established at the end of 2017 - the beginning of 2018, is the end of the middle wave (5) and, therefore, the primary wave ⑤ and the main (cycle) wave I, or was it only the end of the middle wave (3)?

These two scenarios are fundamentally differentthe consequences for future price movements, so I want to take a closer look at the price behavior after setting the current maximum in search of clues as to which scenario is currently being played out. The difficulty lies in the fact that we are just in a large correctional pattern, which, as we already know, is more difficult to analyze. Nevertheless, our efforts will be fully justified if we can determine some of the most likely results and milestones at which our assumptions will be confirmed or disproved.

Fig. 5

Let's start with a scenario in which the peak is ~ 20$ 000 is at the end of wave (3) (Fig. 5). This means that the primary wave ⑤, rising one step higher, has yet to form and establish new long-term price highs. In this case, the last large correction from ~ 20,000 to ~ 3200 $ is a wave (4), which in turn consists of three subwaves, and the subsequent upward movement to more than $ 13,000 should be considered the beginning of a wave (5). Such a reading of the situation corresponds to the rules and basic principles of calculating Elliott waves, which I talked about in the first post, but in this version there is one dubious point: in comparison with previous correctional waves of the average level, wave (4) is simply huge. In fact, its duration corresponds to the wavelengths ② and ④, that is, waves of a higher level. And the price correction from peak values ​​was ~ 84%.

However, as I noted above,the wavelength in the studied pattern gradually increases, so perhaps the wavelength (4) should be taken in this context, and then this difference does not seem so dramatic anymore. In the end, this is after all a correction of wave (3), which itself was huge.

So let's leave the assumption about the wave(4) valid. But does wave (5) unfold at the same time as one would expect from it? So far, rather, yes, with two smaller impulse waves (1 and 3) and two smaller corrections (2 and 4), although it is still too early to be sure of such a calculation, because these waves can ultimately be part of an extended downward wave. Be that as it may, a price increase above the recent peak formed at ~ $ 13,000 would be a convincing confirmation that our calculation is correct and that we are witnessing the formation of the last, fifth wave of the main wave I. On the other hand, the price falls below the start wave 2 (about $ 4,200) will completely refute the assumption of the transition to the impulse wave (5), because, according to the Elliott wave theory, wave 4 cannot overlap wave 2. This will indicate a much greater probability of the second scenario.

Fig. 6

In the second scenario, the peak of ~ $ 20,000 isthe end of the middle wave (5) and, consequently, the waves ⑤ and I (see Fig. 6). The main wave I includes all the upward movement of bitcoin from its very appearance, therefore, if this wave is finished, then all price movements after the peak of ~ $ 20,000 are part of the main wave II, corrective to the entire history of bitcoin. This will be the biggest correction to date and is likely to be accompanied by extreme pessimism regarding Bitcoin's prospects.

In this case, the downward movement from ~ 20,000 to$ 3200 should be considered wave Ⓐ, the first of the three subwaves that make up the main wave II, and rallies from ~ 3200 to more than $ 13,000 - wave Ⓑ, although it is safe to say that wave Ⓑ is probably too early to finish. Both of these primary waves, in turn, consist of three sub-waves. This is allowed by the Elliott Wave Theory as part of a pattern called “flat” correction. In this case, the next big movement will be a downward wave Ⓒ, unless something more complicated is realized, which, in general, can occur within the framework of large corrections.

In any case, the price of bitcoin in the second scenario,most likely, it will fall below $ 3200, and there is no limit that could be defined in advance as the lower point of this fall (of course, except for $ 0). According to the principles of the Elliott wave theory, the target rate in this case should be in the range of the previous fourth wave one level lower (that is, the wave ④ of the main wave I), which corresponds to the price range from ~ 175 to ~ $ 1200. This cannot be said for sure, because so far we have not seen corrections of the main (cycle) level on the bitcoin market, but two past corrections of the primary level (waves ② and ④ from the main wave I) ended slightly higher or approximately at the upper level of the range, calculated according to the rules of the Elliott wave theory. So, probably, the same can be expected from wave II, and in this case the bottom will be formed at about $ 1,500.

Regardless of whether it is already implemented on oureyes of the second scenario, or we are expected to rise to new highs with wave (5) (our first scenario), wave II will come. And as I said, it will be accompanied by extreme pessimism and even antagonism towards Bitcoin. Longtime scavengers will capitulate and sell their stocks. Businesses and governments may reject Bitcoin. Many will say that Bitcoin is “dead.” But as long as bitcoins are traded and the system is technically functioning properly, the end of wave II may be the best opportunity to buy for a very, very long time, maybe even forever.

You can also try to look at the situation ason a three-wave upward movement. Technically, Elliott’s theory allows this, but intuition tells me that such an assumption is erroneous. With this calculation, the peak at the level of ~ $ 20,000 will serve as the end of wave I, and the subsequent movement down to $ 3200 is the whole wave II. However, such a wave II would be too weak in comparison with the spectacular and dramatic wave I. No matter how amazing wave I is, which includes the entire history of bitcoin up to this point, I assume that wave II should be equally shocking, only on panic, pessimism and rejection should come to replace the general euphoria and FOMO that accompanied wave I.

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