Should We Prepare for an Extended Crypto Bear Market?
/WHY PLAYING IT "SAFE" COULD BE THE BEST STRATEGY
It's June 2018 and BTC continues its bear trend despite multiple incorrect predictions over the past few months from several noteworthy forecasters who thought the bull market should have already started.
The most common belief among the prognosticators was that $6,200 BTC was a big support level that would be a pivot point. As we now know, that prediction failed miserably.
The entire alt-coin market has also mirrored Bitcoin. None of the alts have broken free from the overall downtrend since the December 2017 all-time high. All of the alt coins appear to be in lock-step with big brother Bitcoin, and it is safe to assume that none of them have matured to the point that they can bust loose and deviate from its path.
The big question looming in everyone's mind is, "has Bitcoin hit rock-bottom?" But the question shoulnd't center around figuring out Bitcoin's "rock-bottom" price. It should be understanding what happens overall, based on how price activity develops.
When you look at the big picture, you can decide if you're the type of person who would feel more comfortable holding a position for several years through the ups and downs, or if you prefer to take a break in the short-term until the market turns around.
My advice to everyone is to play it safe and look at the worst-case scenario, despite all of the talk about an immediate reversal. In order to do this, we must look at the 1-week chart dating back as far as possible to get a birds-eye view.
In this analysis, we'll take a look at the overall action on the 1-week candles for Bitcoin dating back to 2016. It's necessary to zoom out as far as possible in order to get an idea of what the worst-case scenario could be.
Let's begin by identifying the current trend. In Figure 1, we can clearly see that the current downtrend is not your average correction in the midst of a rising market. After the peak in December 2017, we see lower highs and higher lows for 6 straight months.
The last time we saw an extended bear market like this was from November of 2013 all the way to January of 2015. That was a bit more than one solid year of a downtrend. But what we need to pay the most close attention to is what happened at the end of that extended bear market, which I notated in Figure 2 below.
Before the 2013 bull run spike, we saw smaller breakouts and corrections that did not span the time of what we saw in this overall picture from 2013 to 2015. This is key.
In January of 2015, a quiet accumulation period of 9 months developed before the the market ticked up to the next accumulation level in June of 2016. That next level of accumulation lasted through April of 2017. We could actually call this a period of "consolidation".
In April of 2017 the bulls took full control and the charge started. It took us all the way to Bitcoin's peak of over $19,000 before getting swatted down despite all of the hype and anticipation of breaking the $20,000 barrier. The bear market officially started, and continues on through today.
The biggest point that I want to make is this: we have yet to see a bull run jump right out of a bear market without a period of quiet accumulation followed by a consolidation phase.
It just doesn't happen! Trend reversals take time to develop, and you can't short-cut the process. That's why it is best to turn a deaf ear to all of the ridiculous bull market predictions that we have been seeing week in and week out since the all-time high.
Going back to Figure 1, I believe that the worst-case scenario that we all have to take into consideration is the trading zone delineated by the red box. I don't base this solely on the history of BTC, but by the age-old rule of the four phases of market action which are as follows:
- Accumulation
- Consolidation
- Markup
- Distribution
This is how the stock market has traded in all of history, and the only difference between the stock market and the cryptocurrency market is the time it takes to move through all four of these phases. The cryptocurrency market cuts the overall time down from 13 year cycles to a year or two.
After the all-time high in December of 2017, we have a period of "distribution", or an extended selloff. Before we can see the next BTC moon-shot, we have to see an accumulation and consolidation phase. It won't happen overnight.
While I am not a financial advisor or a professional who gives investment advice, I think everyone can learn from what history has taught us. And for those of us who are not able to invest a Brinks truck full of cash into the crypto market, it's best to play it safe and take the most conservative approach to investing.
Time will only tell. I could be dead-wrong. But taking this approach to predicting the next BTC movement will certainly prevent me from losing the last bit of change jingling in my pockets.
Carlton Flowers
The CryptoPro