Bitcoin Is Forming Its Mid-Cycle Top – Crypto Piece

It’s Time To Wait For The Pullback To Go Long

Major Bitcoin-related launches have often marked a reversal point for Bitcoin. The CME futures launch occurred near the 2017 major top, BTC futures ETF ($BITO) launched near the 2021 second major top, BTC short ETF ($BITI) launched near the 2022 major bottom, and now we have the BTC spot ETF that launched last week, which seemingly has marked yet another turning point for Bitcoin.

Going into the ETF-decision, Bitcoin was already technically overextended with a lot of built-up leverage. Open interest had surpassed $12 billion (red dotted line in bottom panel), which has systematically seen some sort of leverage flush since Dec 2023. This was the first warning signal.

Another major warning signal for Bitcoin nearing a mid-cycle top was the divergence between Bitcoin price and Bitcoin-related equity prices. While Bitcoin was making new highs, Bitcoin-related stocks like CleanSpark ($CLSK), Riot Platforms ($RIOT), Marathon Digital ($MARA) were all declining.

A similar development was also seen leading up to the first top in April 2021.

Lastly, a lot of investors got excited for the Bitcoin ETF because they were shown how bullish the Gold ETF was for the precious metal. Although we agree that the Gold ETF was a long-term bullish development, the launch in and of itself wasn’t. After $GLD launched, it had a slight run-up followed by a 10.9% correction and took 199 trading days to break its previously set high. While we don’t believe that Bitcoin will take 199 trading days to break its recently made highs around $49k, we do believe that Bitcoin is going to have a deep correction next (much more than just 10.9%). 

How Deep A Correction Are We Talking For Bitcoin?

Let’s look at past cycles to see if any pattern emerges:

1)    2014 to 2017: Bitcoin ran up to its 0.618 Fibonacci retracement (measured from the highest price point to the lowest price point). It then corrected slightly deeper than the 0.382 level before its next leg higher.

2)    2018 to mid-2021: Bitcoin ran up to its 0.618 Fibonacci retracement (measured from the highest price point to the lowest price point). It then corrected significantly deeper than the 0.382 level before its next leg higher.

3)    Mid-2021 onwards: Bitcoin has once again run up to its 0.618 Fibonacci retracement (measured from the highest price point to the lowest price point). Given the last 2 instances reached at least the 0.382 Fibonacci level, a correction down to $36k at a minimum is extremely likely.

Below $36k, lies the $34k region that we had highlighted in our previous Crypto Piece here. We had written “Bitcoin has already cleared up a significant amount of upside liquidity. In the process, there’s a lot of liquidity that’s left towards the downside, especially around the $34k region (yellow line in the chart below, courtesy of Coinglass). This liquidity tends to act as a magnet for Bitcoin on most instances.” We believe $34k is also highly likely during this correction.

The next 2 regions of significance are the 2 support zones highlighted in the chart below. The first one lies from $30k to $32k and the second one lies from $24k to $25.5k. In our humble opinion, Bitcoin’s downside will be limited to the first support zone ($30k to $32k region). This would also be a retest of previous resistance into new support. IF Bitcoin were to break below and go towards the lower support zone ($24k to $25.5k), it would substantially damage the technical structure and add a significant amount of “repair” time for the bullish case.

To summarize the above points, we believe Bitcoin’s ongoing correction will reach $36k because it’s the 0.382 Fibonacci retracement level that has gotten hit after every mid-cycle top, $34k because market makers will want to grab the high liquidity in that region, and finally between $30k to $32k in order to confirm previous resistance as support. We DO NOT think Bitcoin’s correction will be able to reach the support zone between $24k to $25.5k or any other levels below that.

Patience will be key here because Bitcoin could take a few weeks to complete its mid-cycle topping process i.e., distribution. We’ll still help you put the capital to good use whenever we spot any short-term or long-term opportunities. Feedback in the comments section is much appreciated. Until next time!

Disclaimer - All materials, information, and ideas from Cycles Edge are for educational purposes only and should not be considered Financial Advice. This blog may document actions done by the owners/writers of this blog, thus it should be assumed that positions are likely taken. If this is an issue, please discontinue reading. Cycles Edge takes no responsibility for possible losses, as markets can be volatile and unpredictable, leading to constantly changing opinions or forecasts.