Bitcoin (BTC): Healthy Retracement Or Beginning Of The Next Downtrend?

Bitcoin (BTC) started the week in red by declining sharply from $8,740 to $8,356. It is trading close to $8,500 at the moment but the crash made a lot of analysts start talking about the next big crash or the most anticipated downtrend. While we still expect that crash to happen, we believe this rally still has some room to go before the next big downtrend. The recent crash might have trapped in some more bears that would most likely be hunted down by the whales as they run their stops and push the price above $9,000 in the near future. It is very tempting to be bearish at this point but from a bearish perspective, just because things are bad does not mean they cannot get worse. The daily chart for BTC/USD shows that the price just tested the bottom of the rising wedge and is ready to climb again.

The bullish momentum that took BTC/USD from $5,129 to current levels seems to be lost. This points to the possibility of a sluggish rally towards $9,000 and onwards. The reason we expect the price to rally past $9,000 is because a test of the 38.2% retracement level from the previous all-time high is important for the price to confirm a bullish or bearish trend. Throughout the history of Bitcoin (BTC), we have seen the price face rejection at this level the first time it tests it during a bear market. After that when the bear trend is over and the market is about to begin a new cycle, the price tests the 38.2% fib retracement from ATH and it breaks past it. So far, we have not had a prior retest of this level in the ongoing cycle. This would be the first test which is why if history is to repeat, we are going to see a sharp decline towards the bottom from there.

Regardless of short term price action, the big picture remains intact and it is very clear. The Schiff Pitchfork on the weekly chart shows which stage of the previous cycle BTC/USD is currently in. We can see that it is in the 2014 part of the cycle and not the 2015 part of the cycle. Moreover, if we were in the 2015 part of the cycle, the NVT indicator would be flashing a buy signal not a sell signal. Besides, the bullish euphoria already tells us which way the herd is leaning. Dumb money never takes the lead; it is always the smart money that rides the new cycle from the bottom.

The smart money did ride the current rally from the temporary bottom just as we all saw and when they dump their bags on those overly enthusiastic bulls; they are going to wait for the next bottom. When the price of Bitcoin (BTC) bottoms the majority of retail bulls will be pessimistic not optimistic. They will not expect the price to rocket to the moon; instead they will be heartbroken and disappointed to see the price falling from $9,000 to $1,800 or lower levels. When the opportunity to buy comes, they will not be buying as they will already be holding big bags at deep losses. Then it will be the smart money to take the lead and begin the new bullish cycle just as it did recently.

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