This is my final chart and projection regarding the future price and environment surrounding Bitcoin. There is a lot to unpack here as I have attempted to account for all technical, psychological, and economic factors that may come into play. Let's begin.
Let's start with the Technical perspective (Scenario #1). As you can see from the chart, I am using Elliot Wave and Volume indicators as my main technical supplements. Based on the daily chart, Bitcoin is in the final wave "c" pattern of a potential correction. If we are currently in a correction instead of a true bear market, the future price pattern should inevitably follow the path I have drawn using blue lines. However, when integrating a full view of the daily chart a larger and wider Head and Shoulder pattern begins to emerge as I have illustrated. Once the theoretical final shoulder has been formed, it will be difficult to predict the future trajectory at the apex. This is because, at this point, the strengths of both Elliot Wave and Charting pattern analysis will be in direct conflict. From an Elliot Wave perspective, this apex will not serve as a final shoulder but as an extremely strong wave on its way to a new high. From a chart pattern perspective, the Head and Shoulder pattern is one of the strongest and most notorious indicators of a long-term decline. Because of the competition between the two schools of theory, the direction will ultimately be decided by which theory persists. The deciding factor then would be entirely sentiment-based and psychological in nature. I cannot form an accurate prediction at this point.
Next is the Psychological perspective. Some may argue that the psychological perspective of markets actually controls all schools of thought within its umbrella (Elliot Wave, Technical analysis, Charting patterns, etc.) as they all find their strength in the number of people willing to believe them and use them as tools to trade. I would argue that overall market sentiment falls into this category. Sentiment can be considered the middleman when two schools of thought collide, as I referenced in the Elliot Wave vs. Chart Pattern example. I may lose some of you during this next explanation, but physics is a natural science and I believe it has applications to markets as well (specifically in the case of adding a variable such as psychology and sentiment). In physics, the formula for analyzing collisions can be examined by the equation p = mv where m=mass, v=velocity, and p=momentum. In this equation, velocity can be either positive or negative meaning that the direction of momentum can be calculated to move in either the positive (up for Bitcoin price) or negative (down for Bitcoin price) direction. Assuming that the "mass" of the market is always "1" (The market for Bitcoin is in existence) a negative or positive value can only be applied to the velocity (direction and speed) at which Bitcoin moves. With this being said, there must be some variable that acts on "v" to give it either a positive or negative value. I believe this variable to be the current sentiment of the market at the time of calculation. The first 3 red lines down I drew indicate some event that instantaneously applies a negative value to "v". This may be a black swan event that dramatically and catastrophically destroys all confidence in Bitcoin as a means of exchange (I.e. Tether collapse, 50% attack on the network, massive exchange hack, overregulation). There are a plethora of events that could occur that could lead to the collapse of Bitcoin as a store of value, but oddly very few events are left that can surpass the positive news that we've already had (i.e. Local government adoptions, massive growth in advertising, increasing number of celebrities associating themselves with cryptocurrency). Based on this view, I believe there to be a 70% chance of catastrophic failure compared to a 30% chance of overwhelming success. This relies on individual and group psychological measures and cannot (yet) be accurately predicted by current technical analysis processes.
The final perspective is that of Economics. Like it or not, our current reality is that fiat currency dictates everything. Who holds the most of it? Who controls the means of production? How much power, and to what extent, can this power be used to influence cryptocurrency. The sad truth is that the very entities that operate and regulate exchanges are still fundamentally based on fiat. They pay their taxes to local governments in fiat currency. At the end of the day, some CEOs and employees may take some (or all) of their salaries in cryptocurrency, but the end goal is to ultimately cash out of positions and convert it into something that they can use to pay their mortgages, feed their families, and purchase tangible assets that improve their quality of life. At this time, I do not see the diluted combined power of those who believe in cryptocurrency to be equivalent to the individuals who truly hold the power to enact change. This does not mean that change is not possible, but that current circumstances are not permissive of a transfer of power equivalent to what is needed to "overthrow" the current economic system and how things function with regard to government-regulated currencies. Don't get me wrong, I see the incredible potential of cryptocurrencies and how in theory they could lead to financial freedom. The narrative, however, is far too manic and volatile at this time. Though some cryptocurrencies are infinite, the current currencies used to purchase these assets are finite. There is only so much fiat currency held by institutions that can chase these assets, and I believe that supply is slowly drying up. Barring any further stimulus (which I view as highly improbable), firms will begin to tighten their views of what does and does not constitute a savvy financial investment.
In conclusion, I view a catastrophic failure of current markets as the only inevitable outcome. This is a terribly pessimistic view, I am aware, but I cannot reasonably come to any other conclusion. My hope remains that we learn from this experience and take the fundamentals of what cryptocurrency is, and can be, to build (or rebuild) a better future. My fear is that history will repeat itself, as it always has, and regulation will continue to concentrate power into the hands of few. Such has, is, and may always be the cycle that drives our economic system. As investments from individual and retail investors begin to dry up, Investment and corporate firms will begin to feed on the only prey they have left; each other. Though bubbles have expanded and popped throughout time and have differed in the specific types of assets involved, I have found that this is the only remaining constant. My only hope is that some can find the exit before it is too late.
Alas for him! Warmer and warmer grew the air. Those arms, that had seemed to uphold
him, relaxed. His wings wavered, drooped. He fluttered his young hands vainly—he was
falling—and in that terror he remembered. The heat of the sun had melted the wax from his
wings; the feathers were falling, one by one, like snowflakes; and there was none to help.
Let's start with the Technical perspective (Scenario #1). As you can see from the chart, I am using Elliot Wave and Volume indicators as my main technical supplements. Based on the daily chart, Bitcoin is in the final wave "c" pattern of a potential correction. If we are currently in a correction instead of a true bear market, the future price pattern should inevitably follow the path I have drawn using blue lines. However, when integrating a full view of the daily chart a larger and wider Head and Shoulder pattern begins to emerge as I have illustrated. Once the theoretical final shoulder has been formed, it will be difficult to predict the future trajectory at the apex. This is because, at this point, the strengths of both Elliot Wave and Charting pattern analysis will be in direct conflict. From an Elliot Wave perspective, this apex will not serve as a final shoulder but as an extremely strong wave on its way to a new high. From a chart pattern perspective, the Head and Shoulder pattern is one of the strongest and most notorious indicators of a long-term decline. Because of the competition between the two schools of theory, the direction will ultimately be decided by which theory persists. The deciding factor then would be entirely sentiment-based and psychological in nature. I cannot form an accurate prediction at this point.
Next is the Psychological perspective. Some may argue that the psychological perspective of markets actually controls all schools of thought within its umbrella (Elliot Wave, Technical analysis, Charting patterns, etc.) as they all find their strength in the number of people willing to believe them and use them as tools to trade. I would argue that overall market sentiment falls into this category. Sentiment can be considered the middleman when two schools of thought collide, as I referenced in the Elliot Wave vs. Chart Pattern example. I may lose some of you during this next explanation, but physics is a natural science and I believe it has applications to markets as well (specifically in the case of adding a variable such as psychology and sentiment). In physics, the formula for analyzing collisions can be examined by the equation p = mv where m=mass, v=velocity, and p=momentum. In this equation, velocity can be either positive or negative meaning that the direction of momentum can be calculated to move in either the positive (up for Bitcoin price) or negative (down for Bitcoin price) direction. Assuming that the "mass" of the market is always "1" (The market for Bitcoin is in existence) a negative or positive value can only be applied to the velocity (direction and speed) at which Bitcoin moves. With this being said, there must be some variable that acts on "v" to give it either a positive or negative value. I believe this variable to be the current sentiment of the market at the time of calculation. The first 3 red lines down I drew indicate some event that instantaneously applies a negative value to "v". This may be a black swan event that dramatically and catastrophically destroys all confidence in Bitcoin as a means of exchange (I.e. Tether collapse, 50% attack on the network, massive exchange hack, overregulation). There are a plethora of events that could occur that could lead to the collapse of Bitcoin as a store of value, but oddly very few events are left that can surpass the positive news that we've already had (i.e. Local government adoptions, massive growth in advertising, increasing number of celebrities associating themselves with cryptocurrency). Based on this view, I believe there to be a 70% chance of catastrophic failure compared to a 30% chance of overwhelming success. This relies on individual and group psychological measures and cannot (yet) be accurately predicted by current technical analysis processes.
The final perspective is that of Economics. Like it or not, our current reality is that fiat currency dictates everything. Who holds the most of it? Who controls the means of production? How much power, and to what extent, can this power be used to influence cryptocurrency. The sad truth is that the very entities that operate and regulate exchanges are still fundamentally based on fiat. They pay their taxes to local governments in fiat currency. At the end of the day, some CEOs and employees may take some (or all) of their salaries in cryptocurrency, but the end goal is to ultimately cash out of positions and convert it into something that they can use to pay their mortgages, feed their families, and purchase tangible assets that improve their quality of life. At this time, I do not see the diluted combined power of those who believe in cryptocurrency to be equivalent to the individuals who truly hold the power to enact change. This does not mean that change is not possible, but that current circumstances are not permissive of a transfer of power equivalent to what is needed to "overthrow" the current economic system and how things function with regard to government-regulated currencies. Don't get me wrong, I see the incredible potential of cryptocurrencies and how in theory they could lead to financial freedom. The narrative, however, is far too manic and volatile at this time. Though some cryptocurrencies are infinite, the current currencies used to purchase these assets are finite. There is only so much fiat currency held by institutions that can chase these assets, and I believe that supply is slowly drying up. Barring any further stimulus (which I view as highly improbable), firms will begin to tighten their views of what does and does not constitute a savvy financial investment.
In conclusion, I view a catastrophic failure of current markets as the only inevitable outcome. This is a terribly pessimistic view, I am aware, but I cannot reasonably come to any other conclusion. My hope remains that we learn from this experience and take the fundamentals of what cryptocurrency is, and can be, to build (or rebuild) a better future. My fear is that history will repeat itself, as it always has, and regulation will continue to concentrate power into the hands of few. Such has, is, and may always be the cycle that drives our economic system. As investments from individual and retail investors begin to dry up, Investment and corporate firms will begin to feed on the only prey they have left; each other. Though bubbles have expanded and popped throughout time and have differed in the specific types of assets involved, I have found that this is the only remaining constant. My only hope is that some can find the exit before it is too late.
Alas for him! Warmer and warmer grew the air. Those arms, that had seemed to uphold
him, relaxed. His wings wavered, drooped. He fluttered his young hands vainly—he was
falling—and in that terror he remembered. The heat of the sun had melted the wax from his
wings; the feathers were falling, one by one, like snowflakes; and there was none to help.