June 7th 2020
Cryptocurrency trader and Technical Analyst. I share insights about Bitcoin and human psychology.
Bitcoin’s price moves in cycles.
- Booms and busts.
- It booms in bull markets.
- And busts in bear markets.
Historically speaking, owning Bitcoin in a bull market has been a fantastic financial decision for investors.
So let’s look at the historical price tendencies that have led Bitcoin to reach a new All Time High in its bull markets.
We’ll analyse Bitcoin’s price action in two ways:
By looking at the twelve month Bitcoin price chart, and
By briefly looking at Bitcoin’s price tendencies after the Halving.
Bitcoin — The Four Year Cycle
The twelve month candlesticks on Bitcoin’s price chart showcase a recurring theme.
Each twelve month candle denotes a specific phase in the Bitcoin market cycle.
Here is a breakdown of each of these phases:
Phase 1 — Exponential Highs
This candle highlights the exponential nature of the uptrend that leads Bitcoin to new All Time Highs.
It is at this stage in the market where investors are at their most euphoric and experience the most extreme form of “the fear of missing out.”
It is these extreme emotions that compel investors to buy at higher and higher prices. This prolongs the bull trend and presses price to new exponential highs.
This phase is also the “topping out” phase where Bitcoin reaches its new All Time High and price peaks.
Phase 2 — Correction
Following the euphoria of the previous twelve month candle, this phase corrects for the over-exuberance and overoptimism in the market.
It is during this time that Bitcoin sheds considerable valuation as a result of cascading sell-side pressure from profit-taking investors.
Bitcoin experiences a healthy retracement after an exponential growth cycle.
Phase 3 — Accumulation and Recovery
After an extended correction in price, Bitcoin experiences waning sell-side momentum and begins to bottom out.
This is where bargain buyers tend to step in and accumulate Bitcoin at a deeply discounted prices. It is these types of buyers that form the very beginnings of new demand for Bitcoin.
Phase 3 happens to be the point of maximum financial opportunity for Bitcoin investors as the prospect of reward greatly exceeds the risk of downside.
Phase 4 — Continuation
The bottoming out period is over and a new uptrend has been confirmed as price experiences trend continuation towards the upside.
In the context of Bitcoin’s twelve month candlesticks, historically this phase has been all about eclipsing a previous area of sellside pressure (i.e. “resistance” whereby sellers resist price from continuing to the upside; this level is denoted by a black horizontal line).
It is during this period where a twelve month candle close above that level of resistance is an important technical step in confirming a shift in market psychology at said level.
This level is a key psychological inflexion point that tends to spur strong emotions in the market and resulting buy-side momentum.
Upon a successful twelve month candle close, this is when market psychology at this key switches from selling to buying.
Bitcoin Halving & The 4 Year Cycle
The Bitcoin Halving is an event whereby the amount of new Bitcoin that gets created every 10 minutes gets cut in half (denoted in blue on the price chart).
Earlier this month, Bitcoin’s third Halving took place, reducing the block reward of 12.5 Bitcoin every 10 minutes to 6.25 Bitcoin.
Historically, Bitcoin has rallied exponentially after each of its Halvings.
Bitcoin rallied +3,400% after Halving 1 and 4,080% after Halving 2.
It is a fundamental catalyst that has played a significant role in propelling Bitcoin’s price to exponential highs.
After all, the Bitcoin Halvings tend to occur a year prior to Bitcoin’s exponential rallies to new All-Time Highs.
Therefore the positioning of the Bitcoin Halving in the 4 Year Cycle is very curious.
In the context of the 4 Year Cycle, the Bitcoin Halving precedes the exponential Phase 1.
Bitcoin’s Current Phase In the 4 Year Cycle
According to the 4 Year Cycle, Bitcoin is currently in Phase 4.
Phase 4 precedes an exponential Phase 1.
This would mean that 2021 will be the year of Bitcoin’s next Phase 1.
For the 4 Year Cycle to continue to play out, Bitcoin needs to manage a twelve month candle close above the ~$14,300 price level in later 2020.
This is interesting as it is a common belief among Bitcoin investors believe that $20,0000 is a psychological inflexion point for Bitcoin’s price.
It is believed that $20,000 is the level that will spur strong emotions & buy-side momentum once breached.
The twelve month price chart however shows that the level that would promote this vital inflexion point in market psychology may actually be ~$14,300.
As per the historical tendencies of the 4 Year Cycle, a twelve month candle close above ~$14,300 is the technical confirmation that is necessary to open Bitcoin up to a challenge and subsequent eclipse of $20,000 to reach a new All-Time High in 2021.
Thank you for reading.