BITCOIN Comparing Capitulation phases among Bear Cycles.As the current 1W candle on Bitcoin (BTCUSD) is rising, leaving a big wick below, prompting to capitulation events, it is a good idea to compare the current 2021/22 Bear Cycle to the past ones (2018 and 2014) in an attempt to determine how low the price can go and where a bottom may be formed.
** The importance of the 1W MA200 **
As seen on the charts on the left, every Bear Cycle hit the 1W MA200 (orange trend-line) as it formed its bottom. It is important to mention that it is the closing of the 1W candle that matters are in both cases, but more so during the 2014 Bear Cycle, the 1W candle broke below the 1W MA200 but managed to close back above it, leaving a big wick behind it, much like this week's candle. The 1W MA200 is currently at $21850 and rising rapidly with each week.
** The Accumulation phase Fibonacci extension bottom **
Both of the Cycles mentioned above, entered a 4 - 7 month sideways phase following the hit on the 1W MA200. This was in my estimate the Accumulation Phase that helped the market in transitioning from the Bear to the new Bull Cycle. Once the 1W MA50 (blue trend-line) broke, Bitcoin confirmed the new Bull Cycle.
** The 1W MA50 **
Speaking of the 1W MA50, its role is also key throughout the Bear Cycles. As shown all all charts, when the Bear Cycle starts, the initial drop always makes a direct hit on the 1W MA50 and then the price rebounds for some months. The exception is of course the current Cycle which made a Higher High in November 2021 but still we have to consider this a technical anomaly and take April 2021 as the Cycle's Top. Remember that I always treated the current Bear Cycle as a special case, calling it the 'smoothest of all time'.
As the Bear Cycle progresses, the 1W MA50 turns into a Resistance for the latter part of the Cycle, in fact in 2018 and 2022 it provided strong rejections.
** The Fibonacci extension bottom **
Circling back to the initial drop to the 1W MA50, if we measure the Fibonacci extensions on the past Cycles from that point to the Top, we derive very useful conclusions. For the 2014 Bear Cycle, the Bottom was made on the 1.618 Fibonacci extension (all 1W candles closed above it), even though as mentioned at the start of the analysis, the 1W candle made a capitulation candle with a wick that reached as low as the 1.786 Fib extension.
The 2018 Cycle made a Bottom on the 1.5 Fibonacci extension. If this is a progression, then each bottom is made one Fibonacci level before. This means that the current Cycle may bottom out on the 1.382 Fib ext, which being roughly at $21950, is around the current level of the 1W MA200. This not only matches perfectly the 1W MA200 criteria that we discussed before, but also is in line with the diminishing returns/ lower volatility theory which suggests that as massive adoption takes place and institutional capital is invested, each Bitcoin Cycle will be less volatile, offering diminishing returns, but at the same time not the brutal corrections of the past.
As you see the past two Cycles made a roughly -85% correction. If the current one bottoms on the 1.382 Fib, then it would be a -66% correction. Still big but considerably less than the Bear Cycles of 2018 and 2014.
Also notice how the current 1W candle almost reached the 1.236 Fibonacci, always a strong Support during asset corrections.
** The 1W RSI break signal of 30.000 **
Last but not least, keep an eye on the 1W RSI. The 2018 and 2014 Cycles, made a bottom when the 1W RSI broke below the 30.000 barrier, turning oversold. That took place exactly on the market bottom and then the Accumulation Channel started. Right now the 1W RSI is a little below 35.000. Even a flat multi-month consolidation can be enough to get it marginally below 30.000, not to mention another brutal 1W candle to the 1W MA200. In any case, even if the 1W MA200 doesn't get hit this time, keep an eye on the RSI 30.000 barrier as an additional market bottom indicator.
Also notice how the 1W RSI is descending in each Cycle, and even in the case of the current one (2021/22), it didn't make a Higher High despite the fact that the market did in November 2021. The Bear Cycle RSI pattern remained intact.
** Conclusion **
So what do we learn from the above? Well the current 1W candle may very well be a capitulation candle similar to that of November 19 2018, which pushed the price to the 1W MA200 three weeks later. A hit on the 1W MA200 (and candle close above) and the 1.382 Fib would be a strong indication of a market bottom but the 1W RSI breaking below 30.000, might be an even more powerful. In any case, as the current 1W candle almost hit the 1.236 Fib and the 1W MA200 is rising rapidly, the 24600 - 21850 is a massive candidate for the Bottom of this Bear Cycle. If the stock market stabilizes soon, we should start witnessing buying from long-term investors and institutions within a month's time.
But what do you think? Where do you expect this Cycle to make a bottom? Is the 1W MA200 a could projection or look more for the 1W RSI breaking 30.000? Feel free to share your work and let me know in the comments section below!
BONUS The sharp 2011 Cycle and how it corrected for reference reasons:
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