Many have asked us whether Bitcoin (BTCUSD) reached a major top in August, as the rally from the April low paused and weakened. Using the Elliott Wave Principle (EW), we will address that question. Meanwhile, we would like to refer to our previous update and earlier findings, indicating that $164-$216K by the end of this year remains the ideal target we are aiming for, with a possible shot at $338-445K.
But in this update, we will focus on the short-term EW count since the April low. See Figure 1 below.
Figure 1. Bitcoin’s short-term Elliott Wave count with several technical indicators and moving averages
What we observe is that there have not been five non-overlapping waves since the April low. Specifically, the green W-1 peaked at $111,998; green W-2 bottomed out at $98,264; gray W-i reached its peak at $123,220; and orange W-a and W-b hit $111,925 and $124,532, respectively. Therefore, although some might interpret this rally as five waves up, it would imply that the gray W-i was a third wave, the orange W-a a fourth, and the orange W-b the final fifth wave. However, the fourth wave ($111,925) would then overlap with the first wave ($111,998), which is not permitted in an impulse.
The only viable explanation would be to label the rally as an ending diagonal (EDs); see the blue dotted lines. Nonetheless, EDs consist of a 3-3-3-3-3 pattern, which does not match what we’re seeing now (5-3-5-3-3). Instead, we interpret the cryptocurrency as being in gray W-iii of green W-3. This still allows Bitcoin to reach its target zone by the end of this year. Additionally, all three prior cycles show a strong rally near their end, which we have not seen this time around. See Figure 2 below.
Figure 2. Bitcoin’s past four-year cycles ended with parabolic moves. Where is the current one?
Now, past performance is no guarantee of future results, but the weight of the evidence suggests something is missing.
Returning to our EW count, we observe that BTC bottomed exactly at the 61.8% retracement of the June-July gray W-i rally: $107,271 versus $107,647. This pattern is typical for a second wave, specifically the gray W-ii. Furthermore, the entire correction from the July top can be viewed as an irregular expanded flat: orange W-a, -b, -c = 3-3-5. The decline from the August ATH (irregular W-b) clearly consisted of five waves. Therefore, if Bitcoin’s price remains above the warning levels for the Bulls*, we consider the correction to be complete.
Lastly, there was positive divergence building (purple lines) on the technical indicators, while the MACD has reached levels not seen since March-April, which was a significant low. Besides, today marks the 3rd consecutive up day, which has not been seen since July 11. Thus, it appears a trend change is underway.
*Warning levels for the Bulls: first, blue, at $110,556 (25% of the uptrend over); second, grey, at $109,913 (50% chance the uptrend ends); third, orange, at $108,420 (75% chance the uptrend ends); and fourth, red, at $107,271 (uptrend from the potential gray W-ii low is over).