Bitcoin sold off sharply this week to its lowest levels of the past four months. Is the $BTC bull market over? Here’s our simple analysis and insight on that question.
After a month of choppy, range-bound price action, Bitcoin ($BTC) finally broke down below support of the 45,500 level this week.
Notably, the Bitcoin sell-off on January 7 caused approx. $450 million in leveraged futures trades to be liquidated within a 4-hour period.
Liquidations have a cascading effect that often exacerbates the selling pressure.
Massive liquidation of over-leveraged futures traders can be positive for the market and help to form a significant bottom (and new participants can do it all over again).
But is this the end of the Bitcoin bull market?
Let’s look at a few simple charts that may provide context to help answer that question.
Bitcoin: New Bear Market or Bull Market Correction?
Bitcoin is currently 39% below its all-time high of 69,000, which may seem like a steep enough retracement to send $BTC into a multi-year bear market (as would likely be the case with stocks).
However, larger than “normal” corrections in the bearish declines coincide with larger than “normal” gains that can easily be achieved in the bull runs–remember that it’s all relative!
With $BTC trending lower with that 39% decline over the past two months, it’s easy to become discouraged and lose focus of the “big picture” trend.
The two charts below of “bear markets” over the past three years may help put the current correction in perspective.
Bitcoin: June 2019 – March 2020
73% decline from the highs
- Bitcoin peaked around 14,000 in June of 2019
- $BTC then plunged a whopping 73% to a low of 3,800 by its March 2020 low.
- Bitcoin reversed and broke out above the June 2019 high of 14,000 by November of the same year.
- $BTC completely recovered from a 73% price decline in just 8 months.
Bitcoin: April 2021 – June 2021
55% decline from the highs
- Bitcoin peaked near 65,000 in April of 2021.
- $BTC quickly tumbled 55% to a low around 29,000 by June of 2021.
- This time, the bulls returned after only a 2-month correction.
- $BTC was back to a new all-time high by November of 2021.
- The Bitcoin recovery of a 55% retracement took just 5 months.
Fast forwarding to the present…$BTC has now retraced 39% from its all-time high of 69,000 (Nov. 2021).
The correction is now two months old–which just happens to be the length of the April to June 2021 retracement.
Now that the 46,000 support level has convincingly been broken, short-term bearish momentum could easily carry $BTC down to the 40,000 area:
Since the 40,000 area is a major area of price support, further decline to this level could lead to a substantial rally in Bitcoin and the altcoin market.
However, we are NOT implying the ultimate pullback lows have already been set.
Nor are we suggesting that Bitcoin will be at another new high within the next several months.
Nevertheless, past Bitcoin cycles and trends have a history of repeating.
Bullish reversals usually start at the maximum level of fear, and around the same time market participants finally give up and “throw in the towel.”
Crypto Trading Plan: What Next?
Regardless of whether or not $BTC finds a bottom near current levels, we will continue to selectively focus on swing trading crypto altcoins with top relative strength in the market.
Although a vast majority of cryptocurrencies still follow the same direction as Bitcoin, we have started noticing a new trend on some days.
A small number of crypto altcoins with high relative strength have quickly recovered from the sell-off and forged their own path higher–even when $BTC remained weak.
For example, Frax Share ($FXS), which we are currently holding with a +14% gain in the Morpheus Crypto portfolio, ignored the Bitcoin selloff and is currently consolidating at its all-time high.
Altcoins with high relative strength are the first to rally when $BTC eventually bounces, and the last to fall if further market weakness continues.
With a vast majority of altcoins plunging lower this week, we are currently scanning hundreds of charts to find the top standouts for subscribers.
As we recently discussed in the Crypto Trading Room, we believe we will gradually continue to see further separation of leading altcoins away from the trend of$BTC.
Bitcoin remains a fantastic store of value, but the crypto market is maturing and there are now a few important, revolutionary altcoins that are building Web 3.0.
As such, the focus of Bitcoin itself may slowly start to have less bearing on the overall crypto market direction.
Still, $BTC direction will always have some impact because of the altcoins that are paired with Bitcoin.
Even after this sell-off, the Bitcoin Dominance Index ($BTC.D) remains near its lows at 40.
A convincing break of $BTC.D below that major support level of 40 would be bullish for the altcoin market in general.
Absolute Top Priority: Capital Preservation
Traditional “buy and hold” crypto investors who don’t use stop losses may have suffered substantial drawdowns yesterday.
However, in the Morpheus Crypto service, we provide members with an exact, fixed stop price with a new trade alert at the time of every new crypto swing trade entry.
This is where the Morpheus crypto swing trading system really pays off- we keep you out of trouble!
The net loss from stopping out of several swing trades can be quickly recovered by just a few winning trades with highly positive risk-reward ratios.
Here at Morpheus, our absolute, top priority for members is to always live to fight another day–which will always be the case as long as stops are utilized.
Making crypto trading profits is secondary because profits ultimately do not matter IF you do not even have a system to protect those profits when the going (inevitably) gets tough within the scope of normal market cycles.
Leave the 10x leveraged trading to the gamblers. We prefer to rely on math–average win greater than average loss, positive win/loss ratio, etc.
As for the short-term, our number one focus right now is CAPITAL PRESERVATION (holding onto previous profits).