By Ross Ulbricht
The closer we get to the present in our analysis, the more uncertainty there is in where current prices fit into the larger Elliot Wave pattern (see here, here, here, here and here for context). The question posed in my last post was whether the all-time high of ~$20,000 in late 2017 was the end of intermediate wave (5) and thus primary wave ⑤ and cycle wave I, or whether it was just the end of intermediate wave (3).
These two scenarios have dramatically different implications for future prices, so we will look closely at how prices have progressed since the peak for clues as to which one is playing out. The difficulty is that we are in a large corrective pattern, which are notoriously tricky to analyze. The effort should be worthwhile though if we can identify some high-probability outcomes and specific points where our analysis will be negated or confirmed.
Let’s look first at the scenario where the ~$20,000 peak is at the end of wave (3) (Fig. 1). This means that primary wave ⑤ (one degree higher) is still playing out and we should see prices move to new all-time highs (see here). Thus, the next major correction — the move down from ~$20,000 to ~$3,200 in late 2018 — is wave (4) (a three-wave correction) and the move up since then to above $13,000 is the beginning of wave (5). This wave count conforms to the Elliot Wave rules and guidelines (see here), but it does have one drawback: compared to previous corrective waves of intermediate degree, wave (4) is massive. In fact, it lasted longer and nearly as long as waves ② and ④ which are higher degree (see here), and it reduced prices by ~84%.
However, as we saw in my last post, all waves have been taking longer and longer to unfold, so perhaps wave (4)’s duration is not as dramatic as it seems. It is a correction of wave (3) after all, and wave (3) was massive too.
So, assuming we have labeled wave (4) correctly, is wave (5) unfolding as we would expect? So far it is, with two minor impulse waves (1 and 3) and two minor corrections (2 and 4), though it is too early to be sure of this count because these waves may be part of extensions. Regardless, a rise in price above the recent high over $13,000 would be a strong indication that our count is correct and the final push of cycle wave I is under way. A drop below the beginning of wave 2 (around $4,200) would invalidate the impulsive count of wave (5) because wave 4 cannot overlap wave 2 (see here).This would indicate a much greater likelihood that our second scenario is playing out.
That scenario is that the ~$20,000 peak was the end of intermediate wave (5) and thus waves ⑤ and I (see Fig. 2). Cycle wave I is the entire move up from Bitcoin’s beginning, so if that is over, it means the price action since then is part of cycle wave II which will correct everything we have seen so far in Bitcoin. It will be the largest correction to date and will likely be accompanied by extreme pessimism for Bitcoin’s future.
If that is the case, the move down to $3,200 from ~$20,000 is wave Ⓐ, the first of the three waves in wave II, while the move from ~$3,200 to above $13,000 is best counted as Ⓑ, though it may be a little early to count Ⓑ as finished. Both divided into three subwaves. This is allowed in Elliot Wave as part of a pattern called a “flat.” The next major move then would be wave Ⓒ down unless something more complex is unfolding, which can happen in big corrections.
Regardless, prices will very likely fall below $3,200 and there is no hard limit to how low they can go (except $0 of course). The Elliot Wave guideline puts the price target in the range of the previous fourth wave of one less degree (i.e wave ④ of I), which had a price range between ~$175 and ~$1,200. We can’t say for sure because we have never seen a cycle-degree correction in Bitcoin, but past primary degree corrections (waves ② and ④ of I) ended above or near the top of their guideline range. So maybe wave II will also and won’t fall below $1,500 or so.
Whether we are in it now (our second scenario), or there is one more stab into new highs with wave (5) (our first scenario), wave II will come. As noted, it will likely be accompanied by extreme pessimism and antagonism toward Bitcoin. Long-time hodlers may capitulate and sell out. Businesses and governments may reject it. Some may call it “dead.” But so long as bitcoins are still being traded and the system remains technically sound, the end of wave II could be the best buying opportunity we will see for a very long time, perhaps ever again.
There is a third wave count that, while technically allowed, my gut tells me is not correct. This count puts the ~$20,000 peak as the end of wave I and the move down to ~$3,200 as the entirety of wave II. This wave II is puny and not commensurate with the spectacular drama of wave I. As amazing as the rise of wave I has been (Bitcoin’s history to date), I expect wave II to be equally shocking, though the negative emotions of fear, panic, pessimism and rejection will replace the euphoria and FOMO we have seen in wave I.