- Bitcoin experiences cycles like any other market, just quicker
- This means we can find patterns that could predict market cycles
- One pattern helps show is when a Bitcoin market cycle is changing from bear to bull
Bitcoin is in many ways the black sheep of the investment world, but that doesn’t mean it fails to adhere to the cycles and patterns more associated with traditinoal markets. To this end, there is a technical pattern that has played out across all markets, including Bitcoin, for decades, that shows with incredible accuracy when markets are about to go on a bull run.
Given that many are predicting that Bitcoin will experience a bull run over the next two years or so that could take it to new highs, can this indicator suggest exactly when this will happen?
The Four Factors
Firstly, take a look at this chart:
It is nothing complicated, just a weekly timeframe with two moving averages applied – 200 and 20. However, this is a very powerful combination that allows us to clearly see Bitcoin’s cycles and what to look for to spot a market bottom.
There are four things we need to see in order to correctly identify an imminent change in trend:
- Narrowing of the 200 MA and 20 MA bands
- Consecutive green candles with a minority of red
- Short candles, showing low volatility
- Must come off the back of a bear market
These four factors are important in different ways. The narrowing of the bands shows that Bitcoin’s short-term price action has caught up with its long-term historical action, indicating that a trend ‘reset’ is imminent. The short bodied, consecutive green candles indicate confidence in the market combined with low volatility, meaning that large scale selling is over and the market is tiptoeing back into health. And to ensure a genuine bull market is imminent, a bear market must just have taken place.
Clear Points of Trend Reversal
Using this information, we can see from the chart that there have been two very clear points where these four indicators have coincided and Bitcoin’s tide has turned from the ‘accumulation’ phase to the very start of the ‘distribution’ phase – in other words a bull run has begun.
The clearest is February-April of 2019:
In this example, the 20 MA clearly illustrates that, following a year of decline, the trend has started to reverse. The low volume green candles that take a kind of stepping stone formation show that volatility is low and all the action is in the buying arena, leading us up to a monster $1,000 candle in early April. 16 weeks later Bitcoin topped out at $13,880.
September-October 2015 is less clear when looking at the macro level, but zooming in we can clearly see the same pattern:
This clear reversal pattern, which came off the back of the 2013 bull market and the 2014-15 bear market that followed, would result with Bitcoin famously tipping $20,000 at the tail end of 2017. Talking of the 2013 bull market…
This chart isn’t old enough to have a 200 MA, but we can clearly see the same stepping stones pattern that would lead to Bitcoin reaching $260 from $12 inside four months.
When Will Bitcoin Begin its Next Bull Run?
Using all this historical data, is it then possible to predict when Bitcoin’s next bull market might begin? The answer is maybe. All we can do is use past price action as our guide and extrapolate it to future price action. Here’s how Bitcoin is currently shaping up:
As we can see, Bitcoin is in something of unchartered waters, with price currently sitting below the 200-week MA for consecutive weeks for the first time since it had a 200-week MA. Bitcoin therefore needs to get back above this trendline before we can even begin to think about a bull market. What’s more likely is that the trendline ends up dropping below the price rather than price rising above it, which then means that the 20-week MA has further to drop in order to get the ‘pinch’ that predates a bull market.
Until Bitcoin gets back above the 200-week MA, however it happens and however long it takes, all talk of a recovery is moot.