Why Bitcoin is Due For a Major Price Drop

Disclaimer: I do not own any Bitcoin right now and have no positions on it in any market.

Introduction

This price analysis will be a bit different than ones that I’ve done in the past.

I don’t plan on really looking specifically at the price in this very second because I want to take a more long-term view at Bitcoin’s price action.

More specifically, I want to look at the volume as well as the potential descending triangle formation that Bitcoin is currently in.

Volume Analysis of Bitcoin

Volume definitely doesn’t look good in its present iteration; TF 1D Chart

Let me explain what I mean by this and why this is something to take into consideration.

This is Another Dimension of Volume Analysis:

When you’re analyzing markets on more of a long-term basis, you want to observe the volume of the selling and the volume of buying.

See these little golden blocks I placed on this? Those clusters were sell volume after buying volume

This is from roughly around the period of December-ish to early March.

So, you can see on the first 1, heavy sell volume. That was that initial crash that we had.

Next golden block, mild volume, then it grows, and then we have the early February panic where we touched down around the high 5’s.

This sounds apparent, but I note this because, during an actual bull market — volume will almost always follow the trend.

Source: http://www.pring.com/articles/article15.htm

However, that’s not what’s happening now.

What we have seen for a while during any of the price runs we’ve experienced is reduced volume.

Can’t say I haven’t warned this result in terms of BTC price. Multiple times over the last few days in my Telegram channel ( t.me/CoinEducation ) ← Completely free! [Shameless Plug]

A lot of indicators were signaling some major bearish sentiment.

From what I’m seeing, it’s not so much that there are a lot of bears, there just aren’t a lot of buyers. Probably only “hodlers” and bears turning to bulls to swing trade or close their short positions before reopening them again.

That’s typically what it means when you’re in a bear market and the volume is contracted the way it’s been when the price increases, which we’ve noted numerous times over the past few months.

So, to reiterate:

Let’s continue from that point above ^^
Read what I wrote on this chart and see how it corresponds to the graphic above

Now, check this out:

This is yet another way in which Bitcoin price action has been EXTREMELY bearish.

As you see above, in a bearish market a decrease in prices = an increase in volume

I demonstrated that this happens often in the screenshots that I sent above ^^. Particularly in the one with the golden boxes.

What’s going on right now is unique, however, beacuse its a price contraction amidst the bear market.

This usually indicates that there isn’t so much a heavy selling pressure, but an absence of buyers.

So, from that picture and the others I posted above, here’s what I want you to take away from this:

The pattern of price decrease in Bitcoin appears to corroborate that the idea that there are substantially fewer buyers than there were in previous times (hence the volume contraction over the last few weeks)

Unless you see any type of sustained higher volume during a price rally, then it’s more than likely an intermediate relief of pressure from the bears via the close of shorts/their conversion to short-term bulls for swing trading more so than an influx of new buyers into the market.

In fact, if you remember that ‘HODL wave’ chart that I posted recently, the numbers on there will corroborate that theory.

https://blog.unchained-capital.com/bitcoin-data-science-pt-1-hodl-waves-7f3501d53f63

Descending Triangle Pattern

Another MAJOR threat that traders need to look out for is the Descending Triangle Pattern.

I posted about this before, but I will post about it again in this article for your edification to explain why we are in a definite downtrend and why the price will more than likely be decreasing from this point as well.

Ignore the prices in the charts that I’m about to post below, they’re not going to bear a lot of relevance regardless (trust me).

Remember when we were all excited about Bitcoin breaking the long-term downtrend from December?

It’s worth noting that this was done on the logarithmic chart setting on TradingView’

What Are Log Charts?

https://blog.unchained-capital.com/bitcoin-data-science-pt-1-hodl-waves-7f3501d53f63

Use that as a quick de-brief if you forgot :).

Back to What We Were Discussing

So, in light of recent price action, I re-drew the downtrend line and it looks like it connects AND it is valid.

Here’s another article I did on trendlines as well if you’re wondering what makes this valid:

https://blog.unchained-capital.com/bitcoin-data-science-pt-1-hodl-waves-7f3501d53f63

Once again, continuing:

Given the fact that the down-trend has been re-established via the price’s failing to surpass the point marked by that third golden circle at the bottom of that diagonal line on the chart that you see above:

It is only prudent to designate Bitcoin to still be in a downtrend.

This has been further corroborated by the miserably low price action.

Descending Triangle Formation (VERY Bearish)

Naturally, through the re-drawing of my downtrend line, I noticed that a ‘triangle’ had formed by drawing a line across the two lows of $6k-ish (as supports), then a line going directly down from the ATH.
Source: http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:descending_triangle_continuation

As seen in the figure above, this pattern is almost always a Bearish sign.

There are a host of rules that are associated with this pattern as well:

Criteria 1

An established trend must be in existence. We can check this off of our list, because we already established above that the price of Bitcoin is still in a clear long-term downtrend.

Criteria 2

Lower Horizontal Line — According to the source for Figure 1, “At least 2 reaction lows are required to form the lower horizontal line”. Essentially, the bottom line of this triangle must connect at least two low points that occur during the pattern. This, too, is also confirmed. Please see the picture below:

Criteria #3

Upper Descending Trend Line — According to the source from Figure 1, “At least two reaction highs are required to form the upper descending trend line. These reaction highs should be successively lower and there should be some distance between the highs.” This, too, is exhibited in the chart of Bitcoin posted above.

Criteria #4

Our source from Figure 1 also tells us that, “The length of the pattern can range from a few weeks to many months, with the average pattern lasting from 1–3 months.” It is more than clear that this is the case in our pattern as well because this pattern began in late December and we are now in the month of May. So, we can check the box on this criteria as well.

Criteria #5

Volume. Another common criteria for confirming a descending triangle pattern formation is an observed contraction in the pattern’s volume.

Criteria #6

Return to Breakout. So, when the price breaks below the horizontal line that is plotted in the above chart, sometimes the price will return to that point in order to ‘test’ it, before continuing lower. We have not yet seen the breakout of the price (which would be a substantial, sustained move below $6k).

So, based on the criteria that was outlined above, it looks like it’s very much a possibility that a descending triangle is formed.

Let’s Take a Look at the Fibonacci

This is what the Fibonacci looks like on the 1D chart. The start of the price movement for this Fibonnaci Chart is around approximately $3,500.

As we can see, there are a lot of different pivot points on this Fibonacci chart, making it a fairly solid predictor of potential future price movement for Bitcoin up to this point.

In the example above, you can see the different points at which the price of Bitcoin has either treated the Fibonacci points as a support or a resistance.

Based on the Fibonacci levels that are plotted on the Bitcoin 1-Day Price Chart, it appears as though the price is headed toward the $6.9k mark.

This, however, does not mean that it is believed that the price will head straight to that level, because price does not move in a linear fashion.

Above, is a cropped example from the Fibonacci where you can see the price pivot between Fib levels (represented by the orange lines) before it eventually reached the lower Fib level.

So, yes, to reiterate, my original prediction of $3–4k still stands.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.