While many still don’t know if bitcoin will explode or explode, I have analyzed the market from a different perspective. My discoveries may surprise you.
In all of my cryptocurrency conversations, few have asked me about the social, political and economic impact of cryptographically secure and time stamped distributed registers.
(What stinks, because I wrote a book, Consensusland, to explore this topic.)
No, most people ask “should I buy bitcoin?” or “which altcoin will give me the best shot at making 100x profits?”
These are easy questions to answer – “yes” and “nobody knows”, respectively.
A more difficult question to answer is “how long will this bull market last?”
As we all know, if you miss the peak, the price of bitcoin goes down many, fast enough. Are we at the top at $ 20,000? Can we reach $ 100,000? What about $ 500,000 or $ 1 million?
Did we reach its peak at the end of 2021? Early? Later?
I’m not trading, but I understand market cycles and data science models. As an investor, having a clear view of the market and the facts is important enough to back up your gut, even if you can never know what’s going on around the corner.
People have created a lot of models on bitcoin. I don’t know which ones to believe, so I’m trying to get to know them all. When making educated guesses about the future, it helps to have as much perspective as possible.
One model is Elliott Wave Theory, which integrates very well with cryptocurrency. In this theory, the markets go up in five waves, then go down in three waves.
Going up, the prices go like this:
- Wave 1: upwards.
- Wave 2: Down, but not that much.
- Wave 3: up.
- Wave 4: Down, but not as low as the previous wave.
- Wave 5: upwards.
During this uptrend, people are largely optimistic. Even during the second and fourth waves, the main believers remain positive despite the fall in prices.
After that, you get three waves:
- Wave a: rapid and rapid decline.
- Wave b: bounce.
- Wave c: Long descent.
At the end of this last wave, even the main believers sell themselves on the market or are resigned to their losses. New buyers are picking up assets at underground prices. Then the cycle begins again.
For a more detailed explanation, read Wikipedia.
Based on this theory, could we have launched wave 3 of a five wave uptrend that sends bitcoin at an unthinkable price?
This analysis becomes a bit technical, so stay with me. Look at this graph of the price of bitcoin from before 2011 to February 2020:
You see five waves rising from 2009 to the end of 2013, then three waves until mid-2015, then three waves. Looks like we’re in the middle of the third wave, right?
What happens if we take a closer look?
When analyzing the graph, you can plead the case of 2009–2013 as the first cycle with five waves and of 2013–2015 as the corrective waves a-b-c.
- Wave 1 – only GOs used bitcoin. No one else cared and many laughed at it.
- Wave 2 – first crash.
- Wave 3 – GOs rebounded and new buyers / miners started to get started. The price of Bitcoin has gone absolutely crazy. Mt. Gox made it easy for people to buy bitcoin while the Silk Road offered the first real use case.
- Wave 4 – second accident, the silk road broke.
- Wave 5 – one last wave.
Then we got the Mt. Gox disaster, the Silk Road leaders went to jail and the United States government sold their bitcoin at bargain prices. The price of Bitcoin fell quickly, then rose quickly, and then fell for a long time.
During this downtrend, almost everyone capitulated. People thought bitcoin was dead. Many have given up. Some have thrown away their hard drives and abandoned their wallets. Development has almost stopped – in fact, some of the best developers have launched new blockchains.
At the end of 2015, the price of bitcoin bottomed out and we started another cycle, wave 1 ending in January 2018.
In 2019, we finished wave 2, when the price dropped a little. Many people were still enthusiastic, development actually increased, and traditional financial companies prepared to enter the markets. People were cautiously optimistic (or at least open to the possibility that bitcoin could increase).
We are now in the middle of a very long, strong multi-year wave 3. As the market is larger, the waves are longer.
If this theory is correct, there is a detail that blows my mind.
Every time we hit a historic peak, we got there in the middle of a wave. If this pattern holds true on this fourth round, this suggests that we might have two more years a bull market after reaching $ 20,000.
Can you imagine how much the price could go up?
In comparison, the Internet bubble peaked at $ 6.7 trillion, or nearly $ 10 trillion in today’s dollars.
If we get closer to these numbers, the cryptocurrency market will increase by 33,000% by the end of 2021. The price of Bitcoin will exceed $ 300,000, assuming it retains its market share of + 60 %.
Crazy and probably not realistic figures. But didn’t everyone say that about $ 10,000, $ 1,000 before that and $ 100 before that?
Yes, these data are circumstantial. No one can predict the future. As someone said during my Bitcoin meeting, “analyzing graphics is like driving while looking in the rear view mirror.”
That is true.
That said, keep in mind: the past is a prologue. As long as these trends continue, you should expect the theory to hold. After all, this model illustrates human behavior and market psychology. These things rarely change.
But the facts do it. From the facts I see, the trend is going in the right direction and there is nothing to suggest that it will change.
It might be far away, but sometimes it’s not the worst thing to be optimistic about.
Relax and enjoy the ride.