Bitcoin bottomed out around $200 many years ago before consolidating upward and entering into a vicious bull trend last year. The movement was so drastic that even a complete beginner could guess that it wouldn’t sustain for long. Prices grew way too much and too fast, way too many ICOs raked in crypto capital and the whole market became heavily overbought due to irrational sentiment.
We’re sure that nobody can deny BTC is currently in a bear market. Every spike up has marked a lower high. Even the most recent attempt (late July) was rejected, dirtily, right at the 100-day EMA mark on the weekly chart. Bitcoin keeps trying to flip to bullish but every reversal gets rejected… It’s sad, the market and its participants are beaten and becoming exhausted.
It’s not possible to predict exactly when the market will reverse. We can look at TA, upcoming news, etc., but those are independent variables with unique factors. We can speculate more on a different piece — our purpose here is to analyze the behavior and patterns found within Bitcoin bear markets.
Without further ado, let’s get started …
The Current Bitcoin Bear Market (2018-Active)
We’re going to go over this downtrend and a major historical Bitcoin bear cycle.
We will also give you some insight on how to find an indication of a market reversal. While July 2018 seemed promising it was fully wiped out in early August. We’ll help you make sense of those volatile price movements and give you an idea of where the price might head from here.
Anyway, this year has been rough on Bitcoin from a speculative standpoint.
Bitcoin’s Fall from Grace, All Year Long…
We entered 2018 knowing we just witnessed BTC’s amazing run-up from below $1,000 to nearly $20,000 in just 12 short calendar months. The amount of sell pressure at this point was astonishing.
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A major catalyst for the pump (future contracts) became negative news when the market realized money poured into CFDs doesn’t positively impact the spot market. In fact, it reduces the demand as more people turn to CFDs instead of buying actual bitcoins.
The downtrend could have been called a mile away. Many experienced traders sold and even shorted at $15,000-plus prices and made a killing. Some long-term holders even managed to double or almost triple their stash by selling to buy back lower. While not always a good approach, securing profits and potentially doubling your crypto holdings made sense after such a meteoric rise.
We do see volatile upward movements. The market turns bullish sometimes on the daily but fails to hold ground. The long-term descending triangle keeps seeing lower highs… Yet the ~$6,000 support level has held the triangle together since it first hit in February (six months ago). It’s a different scenario versus the 2013-2015 bear market where prices kept sliding down inch-by-inch.
Now, let’s look at the worst Bitcoin bear market in memorable history. After this section, we will tie back into where we are right now and give you some perspective on possible price moves in the near-term.
The Worst Bitcoin Bear Market (2013-2015)
Bitcoin has felt many large upward moves in recent years but we’ve also gone through lengthy bear markets in the past. We would like to take a moment to educate you on the most noteworthy bear trend we’ve experienced since Bitcoin’s inception.
Many traders are analyzing the market, checking past price swings and plotting future potential bottoms and resistance points for a reversal. We believe that — if you can visualize how a market corrects and reverses — it will be easier for you to trade smart and score great risk-to-reward.
With that said, let’s take a look at the most dramatic Bitcoin bear market of all-time (2013-2015).
Bitcoin’s Worst Bear Market (2013 to 2015)
We spent 14 months after the late 2013 bubble falling down before we reversed. Exchanges were trading above $1,200 before falling below $200 as market sentiment bottomed out.
Check out how that bear market looked on a chart …
The downfall & breakout moment
The after effect of the breakout
We can’t even chart the 2015 low to 2017 high because the price moved so drastically and pivotal price points just look like blips on the chart. However, here’s a look at the price action since Bitcoin broke above the 2013 high (of $1,242) which triggered that long-term bear market in the first place.
Our observations of this bear market
The sentiment was so poor after MtGox’s collapse that the market just kept going down. It took a while before legitimate exchanges like Bitfinex started leading the market. Faith in crypto was extra low especially with many hackings & exchanges defrauding their users.
The reversal wasn’t one that an average trader would be able to call as it happens. We saw low $200’s for a while and pushed below $200 for a short period as well. Once the market started moving up it was impossible to tame the price for longer. This fact is especially true as the investment appeal (demand) of Bitcoin rose substantially and the 2016 Bitcoin block reward halving event was on the horizon.
Remember, the halving event leads to a big drop in daily mined bitcoins. The block reward went from 25 BTC to 12.5 which meant profitability of mining roughly cut in half. The cost of creating these coins “doubled” as a result thus their suspected minimal value went up. With the mined Bitcoin per day dropping from 3,600 to 1,800 we’ve reduced production by roughly $11 million per day (at current prices).
Do you follow Elliot Wave Theory? A typical bull run will see five waves on the way up. The amount the price can pull back must meet certain expectations or the wave count becomes invalid. Most notably here is the fact that we cannot go below our previous resistance point after making a fresh leg up at the start of a new 1-2-3-4-5 wave pattern.
So the pullback must find support at what was previously a resistance point. That happened with the $500 zone. This price point never ended up getting re-tested much before we violently consolidated upwards and started pumping hard (throughout 2017).
Want to figure out where the bottom will be? It could be met with a sudden spike upward that never reverses or complete stagnation like near the end of the 2015 bear market. We suggest you look over the price action that’s played out this year, as we’ve decidedly been in a bear market ever since double-topping in early January.
Lastly, the market was much different back then as the supply was higher (3,6000 coins mined daily vs 1,800 now) and the number of market participants was much lower. Now everyone is in the crypto game; did you know Binance, a year-old exchange, already ranks as a top-600 site in the US and top-700 globally?
Yeah, the market has certainly matured since then and we can anticipate a bear cycle to run through faster this time around. But, we did hit an all-time-high market cap of roughly $660 billion and we’re barely above $100 billion at current time. Based on the 2013-2015 bear run, percentage-wise, we’ve capitulated and are “ready to boom when the market gives the go-ahead”.
Bitcoin Price (Year-to-Date) Analysis
Bitcoin’s all-time-high hit on December 15th but, from that moment on, the market sold off hard. In fact, BTC dropped 33% in value by December 22nd. This move put us under $14,000
Here are the key points to know for the price action this year …
Bitcoin entered 2018 with a demand for rocket fuel to continue pushing the price into the $20,000-plus territory. It failed to keep the strong buying power and formed a double top in January; after the double top and drop in buy volume… we knew the trend reversed to bearish.
February started off with a big dump. Various news articles published around this time, ranging from stories about banker and government crackdowns to MtGox’s constant selling which took place from Dec to Feb.
An inverse (bearish) cup-and-handle formation came to life on the Weekly chart as speculation played out after the $6,000 bounce earlier in the month. The price roughly doubled within two weeks as the market toyed with $12,000 which was a long-time resistance level.
We wrote about the inverse C&H pattern in this section of our in-depth trading guide … Interestingly, the market came to a consensus that it’s a true inverse C&H formation right before the death cross. Both are exceedingly bearish.
The inverse cup-and-handle formation broke to the downside. We saw volume die off as the price tried to double bottom but ended up forming a handle as BTC failed to make higher highs — after raising a bull flag near the end of March. The breakdown price coincided with the death cross moment almost perfectly… Giving us major fuel for a new, quick downtrend.
- [April & May]
Bitcoin’s death cross moment took place on the Weekly chart in early April. This pivotal cracking point was the last major bearish cross. After the December all-time high we first went bearish on hourly charts, then daily charts — but once the weekly broke the market sentiment turned 100% bearish. Many traders began calling $1,200 to $3,000 price bottoms.
The resulting crash bottomed out in June after finding a $6,000 low just four months prior. The price didn’t bounce back quickly like you would expect with most crash bottoms. However, after coming to a stall in the mid to high-$6,000’s, Bitcoin started reversing into a bullish trend on smaller timeframes in the second half of July.
We managed to trade above the 50-day moving average again. This feat is minor in comparison to the much bigger goal — we need to kill the 100-day ema resistance level on the weekly chart and turn it into support. Once that happens, we can start plotting new up waves and look to sell the pops and buy the pullbacks as the market pushes up.
Now, where are we at in August?
That tough 100-day EMA on the weekly chart has been a real challenge. We realized it was a real resistance after dropping from the mid-$8,000’s. The price dropped aggressively and spent a little time under $7,000 before trying to stabilize in the low 7’s. This move failed as the resistance line made its way lower.
As of August 8th we have now seen Bitcoin plummet well below $6,500 on all major exchanges. This price move nullifies the entire bull flag that took shape when we broke through around $6,800 three weeks ago. That moment was the biggest indicator of a bullish reversal and the market completely rejected it and continued on with the long-term downtrend.
Are we going down more?
The harsh rejection at the 100-day EMA is an indicator that we are still overpriced. The market has sufficient fuel for a further push down. Another retest of this descending triangle is imminent at this point. Barring any sudden news (like a surprise ETF approval announcement), it is a safe bet to say we will retest the ~$5,750 low we saw back in June.
We do see support around $5,000 as this could serve as a potential floor if we do test the downside of a descending triangle. A breakthrough could send prices into the $3,000’s pretty quickly before the market starts to range trade around the $3,500 to $6,000 area.
The market could certainly lay down for a while. Without a doubt, crypto was overbought at inflated prices last year. This bear market could be very real, even with all the institutional interest. However, one surefire catalyst for a price reversal is an approved Bitcoin ETF. Read our analysis of the Bitcoin ETF to find out the overall impact it could have on Bitcoins price.
Is Everyone Shorting Bitcoin Right Now?
The bear market already brought us down significantly from the December all-time-high. We’re now seeing prices that are 66% lower and even cheaper. The drop can certainly sustain for longer but, barring any disasters, eventually, Bitcoin’s supply will dry up.
We know the next Bitcoin halving is on the horizon. The last one made a big impact on market sentiment. We can expect the same to happen… The halving is estimated to occur in May of 2020 but remember that prices could rise ahead of time in anticipation of the reduced supply.
Much of the good crypto news has been “priced in” to Bitcoin’s market for a while now. Most certainly, it will take a huge catalyst (halving, ETF, etc.) to make a real difference in Bitcoin’s market sentiment.
Trade cautiously as volatility can run very high in the near future. Look for indicators of a bullish reversal on the weekly. If you catch that play, gains of 2-500% without leverage or 2000-5000% with leverage, are well within reach.
Analyzing Bitcoin’s Margin Markets
Bitmex, Bitfinex, and OKEx are three leading crypto exchanges with leverage trading available. These platforms have handled eight and nine-figure liquidations this year. Data is limited for Bitmex and OKEx but open longs/shorts on Bitfinex are viewable through this Datamish tool. You can look at the open longs and shorts historically — and even compare with Bitcoin’s price.
The aforementioned data tool is a useful source of information. Any sudden high-volume buys or sells on Bitfinex could coincide with opened/closed margin positions. Please remember… The market is sophisticated and this indicator alone won’t guarantee you profitable trade setups.
Bitmex does publicize liquidation data which can be viewed on the Rekt Twitter page. The term “rekt” is used by leverage traders regularly and simply means forced liquidation. When reading Bitmex values… Buy = Long, Sell = Short and each contract is worth one dollar.
Bullish Reversal in BTC – How Will We Know?
A novice trader will answer this question with one of two answers:
“After crashing hard and seeing a sudden spike and return of buying volumes.”
“After double bottoming and making a new upward trend on hourly / 4h charts.”
An experienced market participant will know an answer that’s more profitable and less risky from a trading standpoint. Their answer will be more along the lines of:
“After breaking resistance on the weekly chart with conviction.”
With an over-leveraged market, a cascading liquidation of shorts could happen when the market first fully reverses. As such, analyzing the margin markets can provide you with unique trading indicators.
Here’s what we’re looking out for right now:
- A breakout that sustains above and finds support at the $8,500 price (likely as a bull flag pattern).
- A re-test of $10,000 with volume and rising support (likely as an ascending triangle), which means the highs and lows would both keep getting higher.
- A change in market sentiment and buy support around $10,000 as this gives us fuel to test $12,000 which clears us for a battle against the Dec 2017 all-time-high.
Those three variables are what we likely expect to happen if a bullish reversal takes place at this point in time. The price is in the low $6,000’s right now. We’re still seeing support although on a bearish pattern as the descending triangle on the weekly has yet to fall apart.
A breakout of a descending triangle creates violent upward momentum. It’s fuel for an eventual “golden cross” which is the ultimate confirming indicator of a bullish trend. Market sentiment will be like night and day once we set the market erupting upwards again. The listed price targets could be seen in weeks (or days with big news out), it likely won’t take months or years.
We must not ignore the downside risk. A descending triangle on the weekly is bearish but it’s taking a lot to break below this bottom price level. The bulls are buying heavily to keep this price point intact. If it collapses, no support exists immediately underneath and that means the market can quickly free-fall … to $5k, $4k or even $3k; trade carefully!