Calm Down – A 10% Rally Does Not a Bull Market Make

Reading Time: 2 minutes
  • Bitcoin has enjoyed a 10% jump in recent days, which has led to some saying the bottom is in
  • The stats do not bear this sentiment out, nor does the wider narrative
  • While new lows may not be forthcoming, further stagnation is more likely that a return to new highs

While it may be technically true that the crypto market isn’t in bear market territory yet, we are undoubtedly in a period of uncertainty and stagnation. Typically this results in pumps of any size, like Bitcoin’s 10% jump this week, being greeted with unbridled enthusiasm by the overexcited (or engagement farming) members of the community. The reason for this is understandable – after all, when you’ve experienced nine weeks of selling you’re going to celebrate any kind of reverse – but at times like this it is important to look at the wider picture and not allow yourself to get carried away.

How Does This Pump Compare?

The first thing we should do is look at a longer term Bitcoin chart to see how the recent pump plays into the wider narrative:

Bitcoin 1 (1)

As we can see, the price action over the last few days can be characterised as a reflex bounce after nine straight weeks of red, with very little to get excited about so far. The picture is even clearer when we look at the Bitcoin cloud indicator we discussed a few weeks ago:

Bitcoin 2 (1)

Again, this week’s move is represented by the tiniest tick upwards that barely registers. While of course this could prove to be the bottom and we continue all the way back to new all time highs from here, the wider narrative doesn’t support such an action. Indeed, comparing the current situation with the position in early 2018 allows us to see some striking parallels:

Bitcoin 3 (1)

Taking the twin highs of 2021 as one, which would have been the case had we not seen an artificial November high caused by the Bitcoin futures ETF launch, we can see a very similar pattern of downward action beginning.

When you consider the way the chart looks with the wider narrative of asset markets getting squeezed while the Federal Reserve tries to get inflation under control, everything suggests that the current bounce is a chance to exit on some alt bags before a longer term period of stagnation takes place.

Don’t buy wholesale into the hysteria of moon boys who are convinced the bottom is in because Bitcoin has jumped 10% after dropping 45% in two months. We would love to be wrong, but we need to see much more consistent strength from Bitcoin before we can be sure that it is going to fight the Fed and push up to new highs.