Issue #23 | Cloudy Technicals, Take Caution
The Ichimoku cloud could be forecasting a 55% decline in Bitcoin and disaster for altcoins.
Issue #23 of CoinChartist (VIP) overview
This week’s edition is brief, due to the sudden urgency seen in the weekly BTCUSD chart
Bitcoin can’t hold above $28,000, and is now losing $27,000. What next?
The most important charts are related to the Ichimoku cloud, which could be warning of a 55% decline in Bitcoin
A crash like that could decimate the rest of crypto
Why its now or never for Ethereum
What Bitcoin Dominance is saying about the dire situation
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This newsletter has been written, and rewritten a number of times already, so the decision has been made to get the content out and focus on the urgency, leaving out less important macro content for a larger focus on Bitcoin. Pay close attention to the Ichimoku cloud, which is now in the process of being lost as I attempt to get this newsletter out the door.
To begin, let’s look at an updated weekly Bollinger Band chart to see how our “Head Fake” is doing. At the moment, price appears to have been rejected by the Bollinger Band basis line. Since this is merely a 20-period Simple Moving Average, price can stick to the span and trade close to it for some time. As a reminder, a close below $24,400 at the lower Band or a close above the upper Band at $31,500 will tell us if Bitcoin is breaking down, or breaking out into a bull market.
Bitcoin price is currently retesting the bottom of the Ichimoku cloud on the weekly timeframe. Price was rejected from the Tenkan-sen (blue). The Tenkan-sen is currently crossed bullish above the Kijun-sen (maroon). The last step in moving fully bullish is making it above both the Tenkan-sen and Kijun-sen. Above the Tenkan-sen, the top of the cloud around $42,000 could be the next upside target. But there is danger in the same forecast, with a chance of catastrophic breakdown.
Note: This level is close to being lost with Bitcoin now trading at $26,666.
With Bitcoin retesting the bottom of the Ichimoku cloud, we can take one look at the last times the cloud was lost on the weekly timeframe and understand the type of danger we are in. The last instance was in May 2022, and a grand total of 24 weeks later, Bitcoin price sank another 55%. In March 2020, it was much worse. BTC shed 55% in only two week’s time. Another 55% decline could be possible if the cloud is lost, taking BTCUSD to around $12,000 per coin. Unlike the slow decline of 2022. I’d expect the low liquidity and fear-filled crypto market to see another sharp correction that’s over with relatively quickly. If the bottom of the cloud holds, the next target is $42,000. If not, look out below. To be clear, I find it unrealistic to see Bitcoin at such prices, a full year after reaching $15,000. But in today’s macro environment, anything is possible. Given the data, it is worth taking caution.
One important signal could be indicating that this time is different, despite that being considered some of the most unwise words in investing to utter. Both in March 2020 and May 2022 when the cloud was lost, the Tenkan-sen (blue) and Kijun-sen (maroon) was crossed bearish. This time around, Bitcoin is cross bullish. In 2020, price was above both spans even with an active bear cross, but COVID caused Bitcoin to cut right through them and the cloud all at once. In 2022, price was well below both spans by the time the breakdown occurred. Today, Bitcoin is below the Tenkan-sen, but above the Kijun-sen. Other information the tool tells us is that the market is still ranging, as both spans are trending sideways. Either the Tenkan-sen or especially the slower-moving Kijun-sen moving upward would be a sign of an uptrend beginning.
If Bitcoin breaks down from the cloud as the bearish scenarios depict above, altcoins would be absolutely brutalized. This would indicate a major trend change in the relationship between Bitcoin and altcoins. The timing of this potential event is interesting, with the release of Fidelity Digital Assets’ essay on “Why investors need to consider Bitcoin separately from other digital assets.” The market is starting to realize that the only real cryptocurrency with value and regulatory clarity, is BTC.
The most dangerous looking altcoin chart is the king of alts itself: Ethereum. The large Ascending Triangle looks at risk of breaking down, which would trigger a break down of a larger wedge pattern. Triangles typically appear before the final move in a sequence, suggesting that a breakdown could be imminent. On the flipside, if the wedge-like pattern is an Ending Diagonal per Elliott Wave Principle, a rebound here and rally to the upper trend line one more time should occur. Currently, I’m looking at this as a 50/50 chance of breakdown or rally. It’s too unclear to call at the moment.
The 50-month Moving Average is being retested for around the fifth or sixth time since June of 2022. If lost, because of the fact Bitcoin could fall out of the Ichimoku cloud, the closest comparison for Ether would be the Black Thursday collapse in March 2020. ETH is still above this critical level, so all is not lost yet. The LMACD also shows that momentum has turned red. Weakening momentum should turn pink. Importantly, however, right after the 50-month MA rejected price in 2020, the LMACD immediately crossed bullish right after and a bull market broke out. Like last time, could one more trip lower be necessary to make investors interested in altcoins again?
If we do see a scenario where altcoins break down, Bitcoin Dominance will more than likely finally make a new high. Momentum is still weakening, however, and BTC.D hasn’t pushed above the current resistance level.
Coincidentally, the resistance level in Bitcoin Dominance drawn happens to be where the SuperTrend shows downtrend resistance that has remained unbroken on a closing basis since 2016. This is where I begin to wonder if the longer-term dynamic will change between altcoins and Bitcoin, because surpassing this level suggests a potential change of a trend that lasted six years. How long does the trend change last?
This last BTC.D chart, however, gives some hope of a scenario where altcoins are just fine, and this resistance level remains intact. On the daily timeframe, the TD Sequential triggered both a perfected TD9 sell setup and a TD13 sell countdown. This suggest extreme trend exhaustion and sequence of candles that could foretell a of a reversal. Adding credence to a potential rejection is the fact the candles closed precisely at resistance, and the candlestick pattern forming is a Three Inside Down pattern.
Elliott Wave Principle remains the best way to understand at what points in a market sequence and trend we might be in.
A short-term bullish count has Bitcoin making increasingly higher lows, which could be a sign of subsequent lower degree waves 1 and 2 (represented as i and ii for example. Once these 1/2 counts move onto the wave 3s, an upward impulse will begin. For this to occur, the weekly Ichimoku cloud has to hold. If it is lost, its time to look at more bearish alternate counts.
This deeper bearish count was always a possibility, in which Bitcoin will have formed a low timeframe Expanded Flat correction. This wouldn’t be too surprising, as this appears to be the same pattern that the DXY, Bitcoin Dominance, and other assets are trading in currently.
This fractal would represent where we are in the Elliott Wave count. The phrase “markets are fractal” refer to precisely this. Not the way that I’ve taken a bars pattern and placed it side by side, but the way that an Expanded Flat could form during the corrective phase after a larger Expanded Flat. It isn’t uncommon to see a smaller Head and Shoulders inside a larger Head and Shoulders, for example.
Everyone speculating around Bitcoin is focused on price, but I regularly like to look at how time impacts potential outcomes. Furthermore, I like to experiment with time based on what indicators tell me, versus what price is saying.
In this example, the Relative Strength Index made a peak in December 2020/January 2021, but price made a peak in April 2021 and again in November 2021. When taking a fractal and time measurement from the 2017 RSI peak and projecting it from the 2020 RSI peak, Bitcoin would be right on track for a significant breakout. The RSI is also above 50 on the timeframe — a crucial signal for remaining in a bull market. My Raging Bull indicator, which has been inactive for months, is based on the RSI moving above a certain level. Once the Raging Bull lights up we’ll know Bitcoin has moved into a more bullish state. Losing the 50 level could push BTC back toward oversold levels not seen since late 2022.
Until next week, thanks for reading!
-Tony