Analysis of Bitcoin's price trend with Elliott wave theory: we are in a rising stage

Author: Mark Helfman

Source: Medium

Compilation: First Class

Mark Helfman is a top writer on cryptocurrency, finance and bitcoin topics. His book "Continent Consensus: Crypto Utopia" explores the social, cultural, and business challenges faced by a fictional country using cryptocurrencies. He has previously worked for US House Speaker Nancy Pelosi.

In all my conversations about cryptocurrencies, few people have asked me about the social, political, and economic impact of cryptographically secure, time stamped distributed ledgers.

Most people ask "Should I buy Bitcoin?" Or "Which altcoin is most likely to make me 100 times profit?"

These questions are easy to answer. The answers are "yes" and "no one knows".

A more difficult question to answer is "How long will this bull market last?"

As we all know, if the peak is missed, the price of Bitcoin will fall sharply and rapidly. Is Bitcoin's highest price $ 20,000? Can it reach $ 100,000? What about $ 500,000 or $ 1 million?

Will we peak at the end of 2021? Or will it be earlier? later?

Non-trader theory

I don't trade, but I understand market cycles and data science models. As an investor, although you never know what will happen in the future, it is important to have a clear understanding of the market and facts to support your intuition.

People have created many models about Bitcoin. I don't know which one to believe, so I try to understand them. When you make an educated guess about the future, it helps to have as many perspectives as possible.

There is a model called "Elliott Wave Theory", which is very suitable for cryptocurrencies. In this theory, the market rises in five fluctuations and then falls in three fluctuations.

Elliott Wave Theory was proposed by US securities analyst Ralph Nelson Eliot. The Eliot wave theory is a theory of stock technical analysis, which holds that the market trend repeats a pattern, and each cycle consists of 5 rising waves and 3 falling waves. Elliott wave theory divides trends of different scales into nine categories. The longest grand supercycle is a super-large cycle spanning 200 years, while the submicronette covers trends within a few hours. . But regardless of the size of the trend, the fact that each cycle consists of eight waves is constant.

In the process of rising, the price looks like this:

  • Wave 1: Rise
  • Wave 2: Fall, but not much
  • Wave 3: Rise
  • Wave 4: Fall, but not as big as the previous one
  • Wave 5: Rise

In this rising trend, people are mostly optimistic. Core investors remain optimistic even if prices fall during the second and fourth waves.

After that, you will encounter three falling waves:

  • Wave a: steep, falling rapidly
  • Wave b: rebound rise
  • Wave c: Long time fall

At the end of the last wave of decline, the fact that even core believers will sell or accept losses in the market. New buyers acquire assets at extremely low prices. Then the cycle started again.

For a more detailed explanation, read Wikipedia .


Applying Elliott Wave Theory to Bitcoin

Based on this theory, can we apply the third wave of the five wave uptrend and speculate that the price of Bitcoin will reach an incredible level?

This analysis is a bit technical, so please be patient with me. Take a look at this Bitcoin price chart from 2011 to February 2020:

Trading chart showing two Elliott wave cycles between before 2011 and February 2020

From 2009 to the end of 2013, you will see five rising waves. From the end of 2013 to mid-2015, there are three falling waves, followed by three rising waves. It looks like we are in the middle of the third wave, right?

What will you find if you double check?


Start from scratch

When analyzing the chart, you can use 2009-2013 as the first five-wave period and 2013-2015 as the modified abc wave.

  • Wave 1: Only the first few users use Bitcoin. Nobody cares, many people laugh at it.
  • Wave 2: The first fall.
  • Wave 3: The rise of the original Bitcoin holders, new buyers and miners started to enter the market. The price of Bitcoin is going crazy. Mt. Gox facilitated the purchase of Bitcoin, and Silk Road provided the first real-world use case.
  • Wave 4: Second fall, the Silk Road is destroyed.
  • Wave 5: The last surge.

Then we suffered the Mt. Gox disaster, the leaders of the Silk Road went to jail, and the US government sold their bitcoin at a low price. The price of Bitcoin first fell rapidly, then rose rapidly, and then fell for a long time.

In this downward trend, almost everyone has yielded. People think Bitcoin is dead. Many gave up. Some people have thrown away their hard drives and lost their wallets. Development has also almost stopped, in fact some of the best developers started new blockchain projects at this time.


Are we in the second five-wave cycle?

By the end of 2015, the Bitcoin price had bottomed out and we started another cycle, with Wave 1 ending in January 2018.

In 2019, Wave 2 came to an end when prices fell a bit. Many are still enthusiastic and traditional financial companies are ready to enter the market. People are cautiously optimistic (or at least open to the possibility that Bitcoin may rise).

We are now in a very long, strong wave that lasts for many years3. As the market is larger, the waves are longer.


The biggest bull market in history?

If that theory is correct, one detail would surprise me.

Every time the price of bitcoin reaches an all-time high, it is in the middle of the wave. If this model is also applicable in the fourth round, it means that the bull market will continue for two years after reaching $ 20,000.

Can you imagine how high the price will go?

In contrast, the Internet bubble peaked at $ 6.7 trillion, which is equivalent to today's $ 10 trillion.

If we calculate around this number, then by the end of 2021, the cryptocurrency market will grow by 33,000%. Assuming Bitcoin maintains a 60% market share, the price of Bitcoin will exceed $ 300,000.

Crazy numbers may sound unrealistic. But before the price of bitcoin exceeded $ 100, $ 1,000, and $ 10,000, some people questioned it.


Everything is just extrapolation

Yes, the data is for reference only. No one can predict the future. As someone said at my Bitcoin conference, "Chart analysis is like driving in the rearview mirror."

That's right.

That is, remembering the past is only a prologue. As long as these patterns persist, you should expect the theory to hold up. After all, this model illustrates human behavior and market psychology. These things rarely change.

But it does. Based on the facts I have seen, this trend is moving in the right direction, and there is no indication that this trend will change.

This article represents the original author's point of view. First.VIP always remains objective and neutral, presenting readers with diverse information for learning and communication, and does not constitute investment advice.

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