Bitcoin by Ross #5: End of a Cycle or Room to Run?

By Ross Ulbricht

We talked about the big picture of Bitcoin’s meteoric rise in value here, and a method of analyzing it called Elliot Wave here. See here and here also for context. Now we will zoom in on what appears to be the 5th and final primary wave of the first cycle wave up in Bitcoin’s price. We know where it began: at the end of the wave ④, at the major low in 2015 around $175. From there we see an exponential advance over nearly three years up to the current all-time high of ~$20,000 (see Fig. 1).

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Fig. 1

This is the wave that got the most attention from the mainstream. By its end, Bitcoin was on everyone’s lips, and optimism about its prospects and future prices was bubbling over. It has since been in a corrective pattern for nearly two years.

There are several ways to interpret the structure of wave ⑤, each with different consequences. First though, let’s look at the move from the end of wave ④ to the ~$20,000 peak. It is difficult to count the intermediate and minor subwaves because there are so many that could qualify. I count no less than 15. Clearly there are extensions and extensions within extensions at play (we touched on extensions here). Luckily, we don’t have to know the correct count of wave ⑤’s subwaves in order to make some useful conclusions about it.

One thing we can be confident of is that the move up to $20,000 from the end of wave ④ is not intermediate wave (1) of ⑤. It is much too large for this, in both duration and price range, compared to previous intermediate waves. thus, if wave (1) of ⑤ ended before the ~$20,000 peak, so must wave (2) down. Wave (3) then must either take us to the peak or end short and waves (4) and (5) get us there.

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Fig. 2

If the ~$20,000 peak is the end of wave (3), then the correction pattern we are in (or just came out of) is wave (4), and we can expect wave (5) to take us to new all-time highs (see Fig. 2). However, if the peak is the end of wave (5), it is also the end of primary wave ⑤, which is the end of cycle wave I. This interpretation means the correction we are in is the biggest we have seen in Bitcoin’s history, one that is correcting the entire move up from the beginning (see Fig. 3).

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Fig. 3

There are three factors we need to recognize that will help us determine how much weight to give these two possible interpretations. The first two concern the size and shape of wave ⑤ compared to the two other impulse waves in wave I: waves ① and ③. The third concerns the wave structure since the ~$20,000 peak which I will save for my next post.

Let’s first look at the price ranges of waves ①, ③ and ⑤. Wave ① started at $0.06 and advanced to ~$32 for an increase of ~53,000%, or ~530x. Wave ③ started at ~$2 and advanced to ~$1,240 for an increase of ~620x. Wave ⑤ started at ~$175. If we count the ~$20,000 peak as the end of wave ⑤, that’s an increase of ~110x. This is enormous for virtually every other asset in history, but it is only a fraction of the moves of waves ① and ③. If the price move of wave ⑤ was on par with ① and ③ (530–620x), it would have to end around $93,000-$109,000. Thus, if our interpretation that wave ⑤ is not over, and the ~$20,000 peak was just wave (3) of ⑤, then a good target for the end of wave (5) of ⑤ of I is around $100,000 (See Fig. 4).

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Fig. 4

Now let’s look at the durations of waves ①, ③ and ⑤. Wave ① began on ~10/1/2010 and lasted until 6/9/2011 for a total duration of ~251 days. Wave ③ began on 11/18/2011 and lasted until 11/29/2013 for a total duration of 742 days. Wave ⑤ began on 1/14/2015. If we count the ~$20,000 peak as the end of ⑤, then it lasted until 12/17/2017 for a total duration of 1,068 days.

From these three primary impulse waves, we see a pattern of increasing duration. The two primary corrective waves (② and ④) also show an increase in duration. In fact, a quick visual inspection of the total price history of Bitcoin on a log scale reveals an unmistakeable “stretched” look, with price fluctuations in general taking longer and longer to unfold (see Fig. 4).

A natural question could be, “what is the rate of this stretching?”, the answer to which would give us a time estimate for the end of wave ⑤ and thus wave I. If we compare the duration of wave ③ to the previous impulse (wave ①), we see that ③ lasted ~3x longer than ①. And if we compare the duration of wave ④ to the previous correction (wave ②) we see that ④ lasted ~2.5x longer than ②. If wave ⑤ is still unfolding and follows this pattern by being proportionally longer than the previous impulse (wave ③) by 2.5–3x, then it should last until sometime between 12/1/2019 - 2/17/2021 (see Fig. 4).

Thus, we have a price and target for the end of wave I of ~$100,000 some time in or near 2020. However, there is no rule that market moves have to be proportional. This is just a pattern we see unfolding that may or may not continue. I should also note that these estimates are based on readings of the price of a bitcoin in the distant past. The best I can find are not very precise. If you have more precise numbers, please post them in the comments with your source.

And if wave ⑤ is already over, then these targets are moot. We will look more closely in the next post at what has happened since the ~$20,000 peak to see if there are any clues as to whether the first cycle wave in Bitcoin is over or if there is another dramatic price increase on the horizon.

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