‘Those who cannot remember the past are condemned to repeat it.’ - George Santayana (1863 – 1952)
It’s been a pretty brutal week again, with bitcoin threatening to retest that recent low, just beneath $6,000. In the event, the low was $6,427, and we have seen a sharp bounce of $1,000 in recent hours. The Death Cross occurred, as expected, but doesn’t seem to have dented the market much (as we warned, it’s not a great indicator for bitcoin).
We wanted to come back to the analysis we first posted three weeks ago, because – so far, anyway – it continues to play out like clockwork. We’ve updated the chart that superimposes the aftermath of 2013’s bitcoin bubble with the aftermath of 2017’s bubble, below:
So let’s take a closer look and draw attention to a few points.
The correlation is close – freakishly close. We don’t have a good explanation for this, other than that human psychology remains the same. However, the degree to which specific bounces and brief rallies match within the overall downtrend is staggering.
The timeline remains the same: the pace of decline this time is around three times as fast as last time. What took well over a year from the 2013 high will take less than 6 months in 2018. Assuming that everything continues to play out on this timescale, we’ll be done in another month.
If that happens, then the beginning of May will offer some exceptional bargains for bitcoin.
Before that, we might well get a brief rally back above $8,000 before the falls continue.
However, we need to sound a note of caution: whilst the main part of the downtrend matches extraordinarily well, the beginning does not. The run-up in price was faster in 2013. It’s fair to expect the model to come unstuck at the end as well. The past is not a bad predictor for the future, but it’s not perfect!
The ‘capitulation’ candle on 6 February raises a question about where the Double Bubble model will cease to be useful. That day saw unprecedented trading volumes and a very convincing floor put in. $6,000 will be a tough nut to crack. It’s possible that was the bottom – and that yesterday’s fall to $6,400 confirmed that. Unfortunately, we will only know for sure in hindsight.
If the model holds to the end (and that’s a big ‘if’ for the reasons above), we can expect a brief low around $4,000, a return to $6,000 and a period of stability before the next move upwards.
The immediate picture for bitcoin will become a lot clearer over the next month or so. We believe that patience and cool thinking will pay extremely well at this point.
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