What do Elliott Waves tell us about Bitcoin’s past, present and future price?
I’m an occasional writer about Bitcoin’s price history. My previous articles ( The Great Bitcoin Power Curve and The Great Bitcoin Power Curve, part 2.) focused on a Power Curve which Bitcoin has ‘tracked’ since 2011, and only mention Elliott Waves in passing.
I’ve decided that the time is ripe to reverse the focus and write an article about Bitcoin and Elliott Waves. I give credit to Paul Gordon who wrote an influential article on the subject in January 2017 (The fractal relationship between bitcoin’s first two bubbles and what they might tell us about a third ) which I recommend reading. I also admit that most of what I know about Elliott Waves is sourced from Elliott Wave International which is not authoritative but is a good primer. I can’t remember who put me onto it but I’m glad they did.
As the charts in this article are from Tradingview I’m going to use its terminology for naming waves.
Minor waves will be labelled 1, 2, 3, 4 & 5 (not actually discussed here, but mentioned for reference to Paul’s article)
Intermediate waves will be labelled (1), (2), (3), (4) & (5)
Primary waves will be labelled ((1)), ((2)), ((3)), ((4)) & ((5)) (Primary waves are actually a digit within a circle on Tradingview)
Cycle waves will be labelled I, II, III, IV & V
Back in the day (2010–13), Primary wave ((1))
The early era of Bitcoin’s price history was dominated by one exchange, Mt Gox. It also happened to neatly coincide with the first Primary wave of Bitcoin, wave ((1)), which consisted of 5 Intermediate waves. Time for a chart:
We can clearly see the typical 3-up 2-down 5-wave pattern. There are a few interesting features worth pointing out.
The 1st wave had the biggest percentage increase (319,100%). Usually the 3rd wave has the biggest increase, followed by the 1st and 5th waves. This can be explained by the sheer newness of Bitcoin in 2010 — it was basically only known to a few hackers and crypto-anarchists and had poor liquidity and therefore extreme volatility.
The 2nd wave had the biggest percentage decrease (93.76%). This is typical. Usually the 4th wave pulls back to some intermediate level experienced during the 3rd wave. By contrast, the 2nd wave can go lower.
The 3rd wave had the longest duration (17 months). Again, 3rd waves are usually longer-lived and experience the greatest appreciation.
The 5th wave had the shortest duration (2 months). 5th waves tend to be short-lived, and often fail to reach theoretical price targets.
There was a classic Elliott 4th Wave from April to September 2013 (note that the remainder of my charts are from Bitstamp, which has the longest continuous Bitcoin price data available):
The 5-wave horizontal triangle is the most common 4th wave pattern seen in Elliott Wave charts. It’s the market drawing its breath before pushing on to a final high. There is an important characteristic of 4th waves which distinguish them from 2nd waves (which are also corrective waves). 4th waves usually see their lows early in the pattern, unlike 2nd waves, which see their lows right at the end (in this case the low came only 2 days after the high of the 3rd wave). It’s worth pointing out that the (B) sub-wave, which carried the price from $45 to $170.28, almost did a 61.8% retracement, a favourite of Fibonacci enthusiasts. Spotting 4th waves is very important to making sense of Elliott Waves. If you can’t find the 4th wave in your chart, something’s wrong (either you’re not looking hard enough or it hasn’t happened yet).
Also note that the waves (A), (B), (C), (D), (E) span the magenta ‘Power Curve’ that is the subject of my earlier articles.
The Big Picture (2011–2021), Cycle wave I
I’m going to jump right to the conclusion here, then spend a bit of time justifying it. Here’s my predicted Cycle wave I, consisting of 5 Primary waves:
Primary wave ((1)) was the subject of the previous section. Primary wave ((2)) is pretty obvious. After surging to $1,163 in late 2013 Bitcoin spent 2014 in free-fall and finally bottomed in early 2015, hitting a low of $152.40. This was a drop of 86.9%.
Primary wave ((3)) also is easy to see: a 3-year bull market that started slowly (in 2015 I almost lost interest in Bitcoin completely, though I still had some), gathered steam, survived many crises (e.g., Bitfinex hack and Winklevoss rejection) and then finally went parabolic in late 2017. ((1)) lasted 3 years, ((2)) just over a year and ((3)) was also 3 years.
I think Primary wave ((4)) started in late 2017 and is still in progress. I expect it’ll run well into 2020. Then finally Primary wave ((5)) will carry Bitcoin to new highs in 2021, maybe six-figure ones.
The reason I think we are in wave ((4)) now is that there was no recognizable large symmetrical triangle during 2015–17. Remember how I said if you can’t see the 4th wave it hasn’t happened yet? That’s why I think it’s still going. Wave ((3)) went for 3 years. I think wave ((4)) will last for a significant time, too.
A 5-wave symmetrical triangle often takes the form 3–3–3–3–3: each sub-wave itself is composed of 3 parts. I posit that the first sub-wave happened in 2018, in 3 stages. The first stage went from December 2017 to February 2018, the second was the so-called ‘meme triangle’ that lasted until November, before the third; a final crash in December to $3,122.28. Not only do triangles frequently appear as the penultimate wave on the way up, they also do so on the way down. Note also that the price declined to below the magenta Power Curve before recovering, like wave (4) did back in 2013.
I predict that we are in the second sub-wave of a very large symmetrical triangle, and the price is going to oscillate around $8,000 until well into 2020. The (A), (C) and (E) lows are going to terminate below the magenta Power Curve. The (B) high is going to be the highest price achieved in the medium term (12–18 months). Another 61.8% retracement would put the target for this at $13,346.30, as marked on the chart above.
Cycle wave II?
If Cycle wave I does end up making six-figure highs, the question then becomes — what next? Elliott Wave theory predicts a Bearish wave II, which should terminate somewhere within the range of the 4th sub-wave of one degree lower — in other words, the Primary wave ((4)) which is in progress now. I’ve already claimed that that has seen its lows, therefore a range of $3,000 to $20,000 is predicted for the low of wave II.
Caveats
I don’t claim that Bitcoin will definitely reach a price of $300,000 or so in late 2021. 5th waves are often weaker than firsts and thirds. But a price far higher than the all-time high of ~$20,000 should be expected. I’ve simply extended the line of the 2013 and 2017 tops and drawn wave ((5)) to meet it.
Also, I’m aware that the current wave ((4)) is taking disproportionately more time in Cycle wave I than wave (4) did in Primary wave ((1)). I don’t really have an argument to defend that apart from observing that in 2017 the price got really, really far from the Power Curve before turning south. A whole year of a Bear market was needed to reacquaint them. Whereas in 2013 the price had only recently surpassed the Power Curve, and only needed a couple of days to fall below it again.
Finally, as should be obvious, nothing goes up forever. Nor does anything last forever. Bitcoin is just over 10 years old. It may not exist in 10 years. Or it may have been surpassed by something else, and becomes the OS/2 of crypto, kept alive by some enthusiasts but seen by everyone else as a curiosity. Or it will be successful, but following a much more modest path of growth as it becomes ubiquitous. Elliott Waves are useful to describe Bitcoin’s price behaviour until some day they won’t be. No-one knows when that will happen, or if in fact it already has happened.