Bitcoin stuck in bearish Elliott wave pattern despite 47% rally, QCP Capital says
Bitcoin’s (BTC) resurgence this year has convinced many analysts that the crypto bear market is over and the path of least resistance is to the upside. QCP Capital suggests otherwise.
According to the Singapore-based crypto options trading giant, bitcoin’s 47% year-to-date rally looks like a “bear breath” within a broader slide that began in November 2021, and the last leg of the bear market could soon resume.
The analysis is based on the Elliot Wave theory introduced by Ralph Nelson Elliott in 1938 in his book, “The Wave Principle.” The theory assumes that asset price movements can be predicted by observing and identifying a repeating wave pattern.
Elliott found that market trends unfold in five waves, of which waves 1, 3, and 5 are “impulse waves” that represent the primary trend. Waves 2 and 3 are “retrace” waves, which represent a temporary “breather” to the preceding impulse waves. An important rule is that the first wave tends to be about the same size as the fifth, and the third wave is usually the longest.
In QCP’s analysis, bitcoin’s slide from November 2021’s record high of $69,000 to its January 2022 low of $39,000 represents Wave 1, and the subsequent retracement to $48,000 through March 2022 represents Wave 2 – a bearish, or temporary, rebound slide.
The crash from $48,000 to the November 2022 low of $15,480 represents Wave 3, and the recent rejection constitutes Wave 4 – a bearish rally similar to Wave 2.
Next up is Wave 5 which, in QCP’s analysis, could push the cryptocurrency down to the Wave 3 low of $15,480, if not deeper.
“A potential double top is forming towards the August 2022 correction high and the May 2022 reaction low at 25,300,” QCP Capital’s market insights team said in an update published on Wednesday. “Above that we have the huge resistance at 28,800-30,000, which is the head and shoulders neck. Until these levels break, our 5-wave number will still be valid, with a final wave 5 lower to come.”
QCP’s analysis comes a week after former Goldman Sachs analyst William Noble told CoinDesk that the cryptocurrency is poised for a rally toward $56,000.
Identifying waves is an art. It is a subjective call. Each wave box can be broken down into sub-waves, as shown below, which makes the analysis quite challenging compared to traditional Dow theory.
The chart of QCP shows a five-wave bearish structure, with the fifth and final wave lower yet to unfold.
Wave 4, identified by the year-to-date gains, has stalled around $25,000, a resistance level dating back to the August 2022 high. A swing lower now would confirm a potential doubling, as pointed out by QCP, and could signal the beginning of Wave 5 – the sale.
The bearish five-wave structure will be invalidated if the ongoing Wave 4 rises above the $28,800-$30,000 resistance area.
Bitcoin changed hands at $24,300 at press time, per CoinDesk data.
