21 Mar Pessimistic scenario for Bitcoin
The latest collapse of Bitcoin made most analysts and traders review their opinion and forecasts. I was no exception because such a collapse could be expected only in the worst circumstances. I’ll analyse the current situation in full in this forecast.
Let’s start with the beginning…
Here’s the global wave structure of super cycles.
The monthly chart shows a collapse below fib 0.232 of the first wave (red line), which is a bad sign for the bulls. For us to say that a growing impulse is forming, the price mustn’t reach the critical level of 4,600 USD. In a pessimistic scenario when the price does go below that value or closes the month at that value, or if the minimum is updated at around 3,148, speaking about a bullish impulse will be impossible. Then, we will be dealing with a real bearish trend, not with a 5-wave bullish impulse.
Let’s become devil’s advocates for a second and imagine Bitcoin will be following the most pessimistic scenario with a target at around 1,000 – 1,200 USD. The weekly chart above visualizes a bearish channel quite clearly. The limit of this channel is at around 5,200 and we are observing a severe fight at these levels. Here I need to mention one thing that most trend analysts often forget. A bearish channel can’t be broken out downwards just as a bullish channel can’t be broken out upwards. Instead, channels can extend.
The chart above shows such an extension. The whole zone, starting with the previous trend and up to the new limits, is a powerful support zone (marked in green in the chart). The limit of this support zone ends at around 3,000 USD where the previous low (wave a’s low) was located.
As a result, for this scenario to be realized, the price has to drop below this support zone, which is quite a difficult task.
What confirms the pessimistic scenario?
- Aggravation of global crisis. The problem is that the virus-related panic will only grow as the virus is spreading across the globe. General quarantine and the closure of borders will complicate economic processes. All this will affect economic figures and the pressure on the stock market will only grow. In these circumstances, people avoid risky investments and withdraw their money from risky assets, including cryptocurrency.
- Whales leaving the market. The difference of the current panicky sell-out from previous collapses is that the panic is brought from outside. There are no fundamental reasons for a collapse inside the cryptocurrency market and none of them may be expected in the shortest time. However, that makes it even more complicated because the current state of the cryptocurrency market can’t be controlled by manipulators or big fish. One thing is when the panic is localized within the market where most investors are beginners and other types of ‘hamsters’. Their mood can be easily controlled by just drawing a few green candlesticks and releasing a few positive publications. However, there’s another thing: when whales are leaving the market to avoid risks and diversify portfolios. This assumption is confirmed by Whale Alert that traces cryptocurrency transactions of big players. As a rule, such players don’t take spontaneous decisions and act in a very sensible manner. So, whales leaving the market are a bad sign, indeed.
- Biggest liquidation of long positions. A worth of $665 million in long positions was liquidated at BitMax alone on March 9, the day of the biggest collapse of Bitcoin! (1 million was missing to have a totally symbolic number :)) What does that actually mean? Let me remind you that BitMax doesn’t trade bitcoin, it trades bitcoin derivatives. Such instruments are usually traded with high leverage. As a consequence, when the market moves in the direction opposite to your position and your debt obligation is in bitcoins too, your debt security starts dwindling. Thus, inexperienced traders get a margin call from the stock exchange before they could bat an eye and their positions are blown up with their deposits. It happens when the amount of loss exceeds the amount of debt security. In other words, private investors lost 665,000,000 USD at BitMax alone on that day. That money will never be refunded even if the price returns to the previous levels. This is quite a big loss for most traders, so the cryptocurrency market lost thousands of active participants in just 1 day.
- Attractive prices of alternative assets. The collapse of the stock market and devaluation of classical trading instruments provide loads of interesting investment opportunities, which attract both big players and average investors. Considering the stock’s market relative transparency and its tough control by the regulator, it can win over a lot of cryptocurrency traders, which will result in an outflow of funds and sell-out of cryptocurrency assets.
What can say much for Bitcoin’s growth ?
- Remember that the cryptocurrency market is still in the grey area and isn’t regulated, which turns it into a perfect tool for tax avoiding and money laundering. Without even mentioning underground business related to darknet. In other words, the demand for cryptocurrency will never die and it will always have its buyers. Considering its user-friendliness, low transaction prices and free circulation, Bitcoin, as the main cryptocurrency representative, will remain an excellent alternative to the bank system.
- Many central banks of various countries take soft monetary policy measures to stimulate the economy through zero or even negative rates, which is guaranteed to increase monetary emissions and create the preconditions for increasing inflation and lowering the cost of fiat money.
What’s the conclusion?
The chart above shows a pessimistic scenario in which Bitcoin will have reached the area of 1,000 – 1,500 USD by the end of 2020. To which extent this scenario can be realized will be judged from the buyers’ activity at current levels. In other words, from big players’ greed. There are 4 important reasons mentioned above for this scenario to be realized. If you know some other ones, please comment below. Time is working against Bitcoin now. If the crisis lasts long, like the pandemic itself, the price may drop under pressure and we’ll see the cherished 1,000-1,500 USD.
Based on my personal experience, I can visualize this picture quite clearly. At the moment when the last of average cryptocurrency holders makes sure Bitcoin is dead, there will be a perfect time for buying it and Bitcoin will rise from the ashes like Phoenix. Just don’t miss that moment! Subscribe and keep in touch!
I’d like to remind you that all materials are provided for educational purposes only. They aren’t financial advice and don’t guarantee any profits. All trading decisions you make are your responsibility only.
Take care of yourself and your money!