Time to Buy Bitcoin? Maybe Not

3 years ago 998 views 7 min read

Mark Newton, CMT

Managing Member / Founder

ML Newton Advisors LLC

Bitcoin- No guarantee that a “Low” is in place just yet. Following a near 40% decline in 10 days, interest in Bitcoin actually spiked, showing an increase in Internet searches per GoogleTrends. Historically big declines like we saw in 2013 and 2017 caused interest to drop off. Thus, it’s interesting that many feel BTC is “on sale” here and ready and willing to buy this first dip without much technical evidence that price has bottomed. Elliott structure still seems to suggest a final “flush” is possible into late June/early July before any real trading low. Additionally, weekly momentum is not oversold and still pointing very much lower. On the two prior occasions that BTC monthly RSI got above 90 it showed over an 80% drawdown from those peaks. Certainly a further erosion to near 20k would pique interest, if this were to happen into late June. However, at present, the recent stabilization just isn’t sufficient to suggest buying dips. Furthermore, cycle studies point down for 2021. Thus, even on a bounce into July/August, there’s no guarantee this will be “THE LOW” that leads back to highs. Particularly on a five- wave decline to new lows, it would be likely that any bounce into Fall might require another five-wave decline into late year before this correction is complete. For those who are aggressive traders, any break of 30k should lead down to 20-25k and that should be a better area to consider buying dips for a bounce.

June 21-July 17 looks right for a meaningful initial low, but larger trends could show further downside into late 2021.

Bitcoin continues to be all the rage with the media, and despite a 50% drop in price, we’ve continued to see massive interest, not just with institutions with long-term positions, but with individuals trying to buy the dip.

Is this the right call? I would argue buying is premature, for several important reasons. (Note, I myself invested in BTC back in 2018 and 2019 and sold all of my exposure between January and April of this year. Im not a perma-Bull, nor Bear, but tend to think being tactical makes sense with an asset that routinely sheds 50% of its value in any given year. )

A couple key points:

* Structurally, BTC remains in tough shape, technically speaking. We’ve seen substantial deterioration in traditional patterns which started back in April with the break of the 2021 uptrend. (However, BTC had begun to show meaningful evidence of waning momentum starting back in early 2021.) Until BTC can regain the area violated back in April (47k) or reach downside targets in price and time, it still looks premature to buy.

* Bitcoin interest actually spiked into the mid-May low, following a 10 day period where this lost 37%. Based on Google Trend data, Bitcoin searches reached new highs for the year into mid-May weakness with a 12 month average Search of 99% with the 5-year search percentage having reached the highest levels since late 2017 just after the peak. One would suspect interest rises on spectacular gains, but increasing demand on dips suggest investors might be looking to buy the dip. From a contrarian perspective, this is a clear negative.

* Elliott patterns don’t look complete per wave structure from the April peak- Movement down UNDER 30k looks most likely into late June/July, but this would represent a completed 5-wave down. Is that a C? I doubt it, more likely a completed A wave and would bounce but then face an additional 5 wave decline which gels with weekly cycles. Stay tuned.

* My Weekly Cycle composite that has stood the test of time suggests 2021 could prove to be a down year. While initial lows to this first decline do materialize in late June, the larger cycle seems to indicate a negative year. The 19 week and 76 week tend to be quite accurate over time, and worth study. Daily cycles show selling pressure into Late JUNE? And then a bounce. We’ll see if this materializes, but still seems early time-wise.

* Demark counter-trend signals that had correctly shown exhaustion near the peaks (Weekly TD Sequential 13 countdown) havent’ successfully confirmed Exhaustion now near the recent lows. (TD COMBO successfully registered a Daily 13-Countdown sell back on March 14^th at a prominent peak; This was retested in mid-April before dropping off sharply. Weekly counts were present and confirmed right near the April peak) TD Combo counts now call for a move back to new lows before any “BUY” will be registered. Weekly Demark counts show “BAR 6” as the lowest bar on recent weakness, not “Perfecting” this as a TD Buy Setup given Demark’s rules.

* Weekly momentum indicators remain negatively sloped and not oversold. While uptrends from last Spring on Logarithmic charts did show support near 30k at a 50% absolute retracement of the all-time high, there might be more that needs to be done.

Importantly, any move back down UNDER May 19^th intra-day lows at 30,066 would create a 5-wave decline which likely would not represent an intermediate-term bottom, but a short-term bottom only which might not materialize until former 2017 peaks are tested, just over 19,500.

Overall, movement OVER 6/3 highs at 39793 would be a temporary positive but yet here also, a move back above 47k is required to install confidence.