Bitcoin: The Bottom Already Happened

24 oct. 2022

When we first took a look at Bitcoin's price action from a long-term view a few weeks ago, we assumed it was due for another major leg down to the $16-17k level or even lower to the $11-12k zone.

This is a sentiment that has been echoed by numerous VC firms, hedge funds, and even investment banks (Goldman Sachs).

However, after taking a second look at the large time frame charts for Bitcoin, it appears there's considerable reason for us to revise our initial estimate of what we consider to be the 'bottom' for Bitcoin.

We're going to move forward here by shifting the time frame of our chart to the 1-week / 2-week resolution (we'll get to the monthly resolution in due time).

Tracking Bitcoin's Total Decline from Top to Bottom, Percentage-Wise

From the most recent ATH ($68,995) to the lowest point of this current bear market we're in ($17,585), the price declined by approximately -74.51%.



That 'bottom' occurred in June 2022. The likely catalyst for this price decline was the UST / LUNA debacle involving Terra Finance that occurred earlier this year.

Let's compare this total decline with what we saw from the top of the 2017 bull market to its eventual bottom a little over a year later (13 months) in December 2018.



As we can see above, the total price decline during that bear market was approx. 83-84% from the prior ATH set in December 2017.

From here, we're going to pan back even further to the peak (ATH) Bitcoin hit in November 2013 to its eventual bottom in January 2015 (13-14 months later).



Many have looked at the ensuing price action following the prior two bull runs and have assumed that this cycle is merely an analog.

However, if we take a closer look at some of our momentum indicators and compare the readings they're giving us at this present moment to what they gave at the bottom of the previous two bear markets, it appears that the market may have already reached its bottom.

Librehash RSI(14) on the 2-Week Resolution

For this indicator, we're going to take a look at the Librehash RSI(14) on the 2-week resolution.

First, we're going to see what the RSI(14) read at the respective bear market bottoms following the 2013 and 2017 bull runs.



Above, we can see the RSI(14) provided a reading of 34.24 back in January 2015.



The indicator read 36.54 back in December 2018 (bottom following the December 2017 bull run).

The only other time that the RSI(14) has yielded a reading that low on the 2-week resolution was back in June 2022.



Perhaps without coincidence, this marks the localized low for Bitcoin for this bear cycle.



Assuming that the trajectory of the RSI(14) remains, then we've already seen the 'bottom' for this cycle (but don't get too excited just yet because this is only true if the RSI[14] remains on its trajectory).

Librehash Volatility RSI on the 2-Week Resolution

Taking a look at the Volatility RSI on the 2-week resolution, we can witness a similar phenomenon between the indicator's readings and the 'bottoms' that were formed following the 2013 and 2017 bull markets.

Check out the indicator's readings below at the bottom of the post-2013 bear market (circa. January 2015):



Now let's see the indicator's readings at the bottom of the post-2017 bull market (circa. December 2018):



Taking a look at the previous two charts, we can see that the indicator turns blue and pivots upward following these 'bottoming' points.

Now let's see where the most recent 'bottoming' point is for this indicator in this current bear market cycle we're in:



To put these bottoms in perspective, let's take a look at this indicator on the 2-week resolution from a 'panned out' view so that we can compare the location of each 'bottom' point we identified for this indicator on the 2-week resolution.



As we can see, the reading provided by this indicator on July 2022, closely matches what it gave us for the bear market bottoms that occurred in December 2018 and January 2015.

To be specific, below are the specific numeric readings for this indicator during those times:

1. January/February 2015 = 35.84

2. December 2018 = 35.85

3. July 2022 = 35.66

As we can see, these points are only separated by a few decimals, maximum (0.19 value points).

Librehash Trending MA

Not going to spend too much time going into the calculations behind this indicator beacuse there were numerous adjustments that had to be made to its original iteration after receiving some valuable feedback from a subscriber.

The important thing to note is that this indicator is primed to signal exits & entries on the basis of overall trend. In other words, its meant to be resistant to intermediate whipsaws in the price action that can yield 'false' buy / sell signals from indicators that are too sensitive in their tuning.

Thus, this indicator is not designed to 'signal' very often. And when it does signal, its mean to capture the localized 'bottom' and 'top' of a specific region of price action.

This indicator is designed to be overlaid on the price chart. So let's see what its showing us on the 2-week resolution below:



This, itself, is not an indicator that the price has bottomed out, but it does lend itself as a strong arguing point that we're far away from seeing any major drop in price or significant takeover by bears in the near future (remember we're still on the 2-week resolution here).

Librehash Double Guppy Channels on the 2-Week Resolution

This is yet another custom indicator we're using as a lens to examine Bitcoin's price action on the 2-week resolution.

The LH double guppy creates a range-bounded channel that envelops the price action (i.e., indicator is coded so that the price never falls below or above the channel). Typically, when the price price action is at the bottom of the channel, we're due for a bounce. When the price is at the top of the channel, we're due for a drop (to understand the reasons why, visit the indicator page where there's a comprehensive explanation of how the indicator works).

Let's take a look at what the indicator is showing us below on the 2-week resolution:



As we can see the price has been bumping against the bottom of the double guppy channels for the past few weeks (dating back to April 2022).

Again, this is not an indicator that the price is at a bottom but it doesn't portend any substantial bearish price action in the near future (remember terms like 'near future' are relative to the time frame we're using here, which is the 2-week resolution in this case; at this time frame, 'near future' should be extrapolated to refer to the next 5-10 periods at least, which would give us a 10-20 week time frame).

Identifying the 'Flat Base' Chart Formation

The 'flat base' is a chart formation discovered by legendary Thomas Bulkowski and documented in his famous technical indicator reference guide titled, 'Encyclopedia of Chart Patterns Second Edition'.

Its important that we take the time to identify this chart formation because many traders in the public analyzing Bitcoin's price have falsely claimed that its current price action reflects an evolving 'descending triangle' formation like what we saw during the previous bear market (following the 2017 bull run).

What's important to note is that this chart formation is typically characterized by:

1. A 'high' formed by the price action, which marks the 'opening' of the chart formation itself. This 'high' is typically a 'bounce' off of the underlying horizontal support.

2. That horizontal support we mentioned in #1 remains consistent throughout the duration of the pattern.

3. The overall volatility of the asset's price action decreases as the progresses (from the 'open' to the 'apex' of the triangle).

There is no such pattern present or emerging on Bitcoin in any time frame. Period. Doesn't matter whether you look at Bitcoin through a logarithmic or 'regular' view.

Exploring the 'Flat Base' Pattern

This is a chart pattern we've never covered before because we've never seen Bitcoin (or any other crypto) exhibit such price action.

But now that we are observing this chart formation (clearly, at that), its time for us to get a crash course on what the 'flat base' pattern is, how to recognize it, how to identify it within Bitcoin's recent price action and how that impacts our price forecasts moving forward.

Thomas Bulkowski noted that he observed this pattern at the end of the 2008 bear market (traditional finance). More critically, he notes that he struggled to identify this chart pattern at first due to his chart settings.

Specifically, Bulkowski stated, "The real reason I did not find any [flat base patterns] is because I was using the logarithmic scale on my charts and not the linear or arithmetic scale. Switching to a linear scale when searching for flat bases made all the difference."

Now let's take a look at what the Bitcoin price chart looks like when we have our charts set to a 'logarithmic' view (which its usually always on by default):



Now let's see what it looks like on the regular, non-adjusted view:



As we can see above, Bitcoin's most recent price action strongly mirrors a typical 'flat base' chart formation.

This pattern is also commonly referred to as a 'rectangle bottom', which is created when the price enters a traded range (heavy consolidation) for a significant period following heavy bearish price action.

In most cases, this pattern is considered to be a bullish reversal where price action is expected to breakout above the overhead horizontal support formed by the traded range during a bullish breakout (which should be accompanied with sufficient volume).

Conclusion

This price analysis is going to go on a limb and conclude that we've already seen the bottom for Bitcoin (back in June 2022), and that we should only be seeing perpetual / gradual increases in the price action from here.

Given the readings on all of our technical indicators (on various time frames), it doesn't seem unreasonable for someone to take a long position here (with a heavy S/L that must be adhered to).

Below is our R/R for the time being (be warned that we're still in a phase of heavy consolidation & low volatility, so the choice to enter into any position at this point may result in one having to wait several more weeks before reaping the potential ROI from this position).



You read that R/R right. We set a target for Bitcoin at 32k with a S/L at the current bottom for this bear market at 17.5k.

That gives us a reward that's about 7x our risk and a total risk of less than 10%, with a potential reward of >65%. Assuming the price gets there, this would just be a starting mark for us.

This price analysis makes such an ambitious forecast because there's nothing on any time frame that's indicating Bitcoin's price is in jeopardy of being seized by bears anytime soon.

Let's revisit this price analysis in the near future and see if our forecast ends up being correct.