What Elliott Wave Theory suggests is next

Any Bitcoin price prediction is just a guess with no basis to make the forecast. The stock-to-flow model that was once the most cited reason for higher price expectations has failed, leaving technical analysis, chain signals and statistics as the best chance to find future price targets.

Elliott Wave Theory is a technical analysis forecasting methodology discovered in the 1930s, which is based on identifying extremes in investor psychology combined with distinctive price behavior. With Bitcoin and other cryptocurrencies so susceptible to the ebb and flow of investor sentiment, here’s what Elliott Wave Theory suggests about what’s next for the Bitcoin price.

A Brief History of BTC Price Action

The Bitcoin price index chart begins in late 2010, with the first ever cryptocurrency trading at pennies on the dollar. By the end of 2011, the price per BTC grew by more than 60,000%. Before the end of the year, it has lost 94% of its value.

From the low of about $2, another bullish impulse added another 60,000% ROI by the 2013 peak. Another steep corrective phase followed, cutting the cryptocurrency down by 86%.

What followed was arguably the most talked about bull run since the dot com bubble, when in 2017 Bitcoin hit nearly $20,000 per coin. Now we can see that extreme price swings and swings in investor sentiment lead to boom and bust cycles across crypto. Bitcoin once again found a bottom of $3,000 in 2018, which will be the basis for the rest of the analysis.

The first wave ever and the history of Bitcoin price | Source: BTCUSD on TradingView.com

An Introduction to Elliott Wave Theory

First discovered by Ralph Nelson Elliott in the 1930s, Elliott Wave Theory is a foundation for explaining how markets grow over time. The motive wave in EWT is an example of markets moving three steps forward and two steps back.

These steps alternate back and forth between growth and corrective phases. Motif waves consist of a total of five waves – with odd-numbered waves moving in the direction of the primary trend, and even-numbered waves moving against it.

Although corrective phases result in a drastic drop in value, incremental growth always remains in the primary trend direction. Waves, both impulsive and corrective, both appear to varying degrees and time scales.

For example, a five-wave impulse on the daily time frame may be only a small part of a multi-century Grand Supercycle. Figuring out where Bitcoin is in its various wave cycles and degrees can help predict future price action.

Bitcoin price prediction scenarios based on possible wave counts | Source: BTCUSD on TradingView.com

Review of the current market cycle, according to EWT

Each wave in an impulse has unique characteristics that can help an analysis decipher where an asset is located in an overall motive wave. After the bottom of the 2018 bear market, crypto had a clean slate to rise from. In 2019, Bitcoin rose to $13,800, showing that the market was still alive in the speculative asset.

Almost the entire rally reversed, which is a common characteristic of a wave 2 correction. Corrections tend to alternate between sharp and flat corrections. Sharp corrections are represented by zig-zags. Wave 2 behaved like a zig-zag, and it cannot be denied that the March 2020 Black Thursday collapse was a sharp correction.

Wave 3 of the Elliott Wave is typically the longest and strongest wave, characterized by much wider participation than wave 1. The crowd starts to pile in at this point. Bitcoin gained national media attention when it reached new all-time highs during this wave. From there, things get more confusing.

Elliott Wave practitioners are divided into whether BTCUSD has already completed wave 4 and wave 5 phases, or whether wave 4 is still ongoing and wave 5 is yet to arrive. Using these two scenarios, some goals can be considered.

Things could get extremely bearish for Bitcoin if the cycle has ended | Source: BTCUSD on TradingView.com

Bearish and bullish scenarios and targets

In the bearish scenario, a truncated wave 5 ended the Bitcoin bull run and sent the crypto market into its first true bear phase, with wave 5 of V done and done, ending the primary cycle (pictured above).

Completed bull markets often return to wave 3/4 territory once the motive wave is complete. Bearish price target sets the negative Bitcoin price prediction from anywhere between $9000 to as low as $2000 in a complete collapse of the market. A major stock market and housing disaster could eventually do the trick by pulling the capital left out of crypto.

The bullish scenario is much more positive, and fits better with what Elliott Wave Theory calls “the right look” and the right count. In the bullish scenario, Bitcoin is in the final stages of an extended flat correction, and once the sentiment and price extremes are done, the top cryptocurrency will quickly move to set another bullish price extreme and sentiment switch, much faster than anyone is prepared for to.

BTC appears to be in the final stages of an expanded flat wave 4 correction | Source: BTCUSD on TradingView.com

Using EWT to make a Bitcoin price prediction

The magic behind the Elliott Wave Theory and why it affects the growth of financial markets is because of its relationship with Fibonacci numbers. Fibonacci numbers are based on the Fibonacci sequence, which is related to the golden ratio. The Fibonacci sequence reads 0, 1, 1, 2, 3, 5, 8, 13, 21, and so on.

In Elliott Wave Theory, there are 21 corrective patterns ranging from simple to complex. A motive wave is 5 waves up, while corrective waves are 3 waves down, creating a total of 8 when added together. A fully realized impulse wave with all partial waves is 21 waves up, while corrective phases are up to 13 waves down. Each Fibonacci number from the sequence is included in a certain capacity.

Corrections also stop at Fibonacci retracement levels, and impulses reach Fibonacci extensions as price targets. Wave 5 is usually similar to wave 1 or wave 3 in terms of size. If wave 5 is prolonged, and it often is in crypto, wave 5’s target may fall somewhere between 1.618 of wave 3, or 1.618 of the sum of wave 1 and wave 3.

Bitcoin price reached the 3,618 extension from the bottom of the bear market, allowing the top cryptocurrency to overshoot again. On the low end, a price target of 1.618 would put the top of BTC for this cycle somewhere near $96,000 per coin, while another extension of 3.618 could take the cryptocurrency’s top all the way to $194,000 per BTC.

This makes the Bitcoin price prediction using EWT anywhere between $100K to $200K before the cycle ends. You can watch this Bitcoin price prediction unfold in real time by bookmarking the idea on TradingView.

A possible Bitcoin price prediction based on Fibonacci extensions | Source: BTCUSD on TradingView.com

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Featured image from iStockPhoto, charts from TradingView.com