The price of Bitcoin is shockingly close to its previous high from 2017, causing widespread panic, fear and despair throughout the cryptocurrency market. But could the violent downward movement be a textbook zig-zag correction? And if so, what does this mean for the crypto market next?
Bitcoin Price Action Follows a Deadly Zig-Zag Pattern
Despite the narrative from 2020 onwards that Bitcoin and cryptocurrencies had matured and had an asset class, the recent crash reminded the world that digital assets remain speculative. Speculative assets are driven by sheer emotion, as there are no ideal ways to fundamentally price Bitcoin yet. Most on-chain signals remained bullish despite a drop of more than 70% from the peak set in November of last year, for example.
Price action could be better predicted based on Elliott Wave Theory, first discovered in the 1930s by Ralph Nelson Elliott. According to Wikipedia, “The Elliott Wave Principle posits that crowd-trader psychology, a form of crowd psychology, moves between optimism and pessimism in repetitive sequences of intensity and duration. These mood swings create patterns in the markets’ price movements at every degree of trend or time scale.”
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In a nutshell, bullish and bearish phases alternate in a predictable manner through what Elliott called “waves.” The theory describes markets moving up between a motive phase and a corrective phase. Motive waves are primary cycles consisting of 5 subwaves in total. Waves 1, 3 and 5 are impulse waves in the direction of the primary market trend, while waves 2 and 4 are corrective phases. When wave 5 completes, the motive wave (a bull market cycle) moves into a corrective wave (and a bear market).
Waves of motivation can take many different forms and corrections can be downright confusing. However, the latest correction in Bitcoin could be a textbook zig-zag correction, depending on how the pattern played out from a sentiment standpoint.
BTCUSD could have completed a zig-zag correction | Source: BTCUSD on TradingView.com
Will BTCUSD finally get a relief rally?
The zig-zag pattern is a corrective 3-wave structure labeled ABC and subdivides into a 535 pattern. The first move down, labeled A, is a 5-wave momentum move based on pure emotion. Wave B is characterized by moving up in this case, absorbing new bullish positions that are ultimately eliminated in wave C’s move down. Waves C of a zig-zag are also panic-driven momentum moves. and fear.
When they are completed, the market can go back up. It is hard to imagine at this point in the pattern that a reversal is possible given the extreme change in investor sentiment, but that is often when rallies spring from disbelief.
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Since Elliott Wave Theory focuses on investor sentiment patterns going back and forth from bearish to bullish and vice versa, the patterns can be used for profit, but are typically only identifiable once completed and over the long term. in retrospect. Is the recent downward spiral nothing more than a downward zig-zag pattern that may have recently completed?
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Featured image from iStockPhoto, Charts from TradingView.com