Crypto has been flipped into a short-term bearish market structure in the last few days. With pullbacks can come a lot of uncertainty and impulses to make bad decisions. So that being said let’s dive into some charts and take a look at what to expect from this pullback.
First of all it’s very important to note that 30% drawdowns for Bitcoin during bull markets are very common, for example in the 2015 to 2017 bull market, where Bitcoin went from $300 to $20k, it experienced 6 pullbacks of over 30%.
If we take a look at this first chart, we’ll also notice that Bitcoin commonly experiences volatility when it is in the territory of its previous all-time high. So taking all of these factors into account, this pullback is nothing to be alarmed about, In fact, there’s a good chance we’ll see a pullback in the stock market as well soon. However, that’s a topic for another day – stay tuned for our next macro report 😉
Getting into chart 2, we’ll take a quick look at Bitcoin’s daily time frame to get an idea of where things could go in the next day or two. At the time of writing, Bitcoin has printed a wick and is teetering on a key level at 65k. If we’re able to reclaim 56k and close the daily candle above, that would be a major sign of strength that could push us back to test the local high, although that scenario seems unlikely.
If we are unable to reclaim this level, there’s a good chance we test that 60k area, and likely even the 50-day moving average. How it will happen is if Bitcoin can find some stability for a few days, the 50-day MA will come into play, and we’ll get to test it in the 60k zone. However, if the bears hold strong, we may fall to test the 50 MA at its current level of 56k.
One crucial chart we’ll also highlight is the short-term holder realized price. This is maybe the best indicator for signaling whether we’re in a bull market, bear market or sideways market. If you’ve been reading our publication for long, you’ll know that this is one of our favorite charts.
Short-term holder realized price is the average cost basis for all Bitcoins that were purchased within the last 150 days. The reason we look at this indicator is to see whether short-term holders are bullish or bearish.
If you look at it going back to 2016, you’ll notice one key pattern. That being, in bull markets, short-term holders, always defend their cost basis. This is key in knowing the medium-term direction of the market.
Currently, we’re in a bull market, so the assumption is that the pattern will hold. Thus, we’re considering 53k to be our expected maximum bottom for this pullback, which would be a roughly 30% drawdown from the local and new all-time high of $73.5K.
To tie it up we’ll go back to the Bitcoin weekly candle chart and look at a couple of factors.
The 9-week moving average is a key indicator we’re watching, this, along with the 50-day moving average, is our local line in the sand. There’s a good chance Bitcoin will test it before it makes any other significant moves.
If the 9ma and the 60k level holds, that’s a sign of strength Bitcoin needs to continue bullish. However, if it loses the 9ma, that will likely lead to our maximum drawdown scenario.
Still Bullish In the Medium-Term
To end on a brighter note, Bitcoin has already set a record in this cycle. This is the first time it has ever hit a new all-time high before the halving takes place. In light of this, Bitcoin is way ahead of schedule relative to past cycles, most likely due to the success of the new Bitcoin spot ETFs, which have accumulated billions of dollars in flows in just over 2 months.
There’s one last bullish stat that we’ll leave you with. In previous cycles, Bitcoin has doubled in less than 85 days after hitting its all-time high. If this pattern were to repeat itself, that would put Bitcoin at $140k before July. Obviously, this would be an extremely bullish scenario, and this is not to say it will happen again.
Tying It All Together
Whether you’re excited about the bull market or terrified of a deeper pullback, it is vital to maintain your composure and not get overly emotional in either direction. If you’ve been following our premium research and you’re happy with some of your profits, don’t be afraid to take some chips off of the table. On the flipside, if you’ve been sidelined and are feeling the Fear of Missing Out (FOMO) now is probably the opportunity to begin dipping your toe in and accumulating.
Stay smart and stay disciplined,
Happy Investing.