Decaying Overbuying for BTC Signals an Eventual Bearish Turn
As I expected before in a previous idea a couple of months ago, BTC and Co were heading to a flattened curve after the incredible gains and broken records in the past months. It came as no surprise to me because I am an avid follower of the 1W chart, which, for BTC, I believe is the most important one. The thing is that when gains are so high and so rapid, charts of more detailed views lose their significance. Still, the 1W chart is usually overlooked even by longtermers.
So what is so significant about BTC's 1W chart? It is the range of history it shows that allows accessible comparative analysis, and that's what I am referring to in this idea.
In this chart, we can see 3 spikes of growth (bullish markets), 2018, 2019, and the latest in 2021. Both of the first 2 were followed by a short bearish market, and in both, even if it's not shown in the chart, people also thought the prices would never fall, and falling they did to a certain level of support as the lowest point of the bearish market, which was always the lower Bollinger Band of the 1W chart. Looking closer at the RSI graph, we can spot the similarity between the second bullish rally and the current one: both being of the decaying type when it comes to overbuying. The first rally in 2018, on the other hand, had an oscillating period of overbuying. So what's the significance of this?
To answer this question, let's check the points bellow comparing the market behavior in both cases when the prices are above the normal range of buying:
* A decaying overbuy means that the momentum of buying is decreasing, even if the prices are increasing significantly. An oscillating one indicates that the momentum is steady.
* Decaying overbuy indicates that the gains will fade gradually, like it did this week, after several previous corrections which were increasing in magnitude and frequency. For an oscillating one, the corrections usually come in fixed intervals and with similar magnitudes.
* For an oscillating overbuy, prices can decrease abruptly when the bullish market is over. For the decaying one, the drop will probably happen after flattening out in the medium range.
* Peak of volume is more or less periodic for the oscillating overbuy, usually increasing at the last breath of the bullish market. For the decaying one, the peak is long before the last breath of the bull. For the current market, the peak was in the beginning of 2021.
Now that we know the difference, it is evident that the decaying overbuy is a clearer signal. Nevertheless, greed and optimism blind us from what's obvious, that is the current correction.
How about the future then? In the long run, BTC will regain its value and reach more peaks until it doesn't matter anymore and the competition increases with other coins. As for the near future, I am positive that the price will go more negative, probably after flattening a bit. The thing is that the market is losing confidence in BTC as a growth asset, and it's difficult to see momentum building up in a sustainable way in the short term. This would require a fresh bullish market drive, and I am not talking here only about Crypto.
For the cycle to complete, the lower band will be hit eventually, but as it stands at 20000, it is very low, so it won't happen very soon. My prediction is that it would happen when the band nears 38000.
So what is so significant about BTC's 1W chart? It is the range of history it shows that allows accessible comparative analysis, and that's what I am referring to in this idea.
In this chart, we can see 3 spikes of growth (bullish markets), 2018, 2019, and the latest in 2021. Both of the first 2 were followed by a short bearish market, and in both, even if it's not shown in the chart, people also thought the prices would never fall, and falling they did to a certain level of support as the lowest point of the bearish market, which was always the lower Bollinger Band of the 1W chart. Looking closer at the RSI graph, we can spot the similarity between the second bullish rally and the current one: both being of the decaying type when it comes to overbuying. The first rally in 2018, on the other hand, had an oscillating period of overbuying. So what's the significance of this?
To answer this question, let's check the points bellow comparing the market behavior in both cases when the prices are above the normal range of buying:
* A decaying overbuy means that the momentum of buying is decreasing, even if the prices are increasing significantly. An oscillating one indicates that the momentum is steady.
* Decaying overbuy indicates that the gains will fade gradually, like it did this week, after several previous corrections which were increasing in magnitude and frequency. For an oscillating one, the corrections usually come in fixed intervals and with similar magnitudes.
* For an oscillating overbuy, prices can decrease abruptly when the bullish market is over. For the decaying one, the drop will probably happen after flattening out in the medium range.
* Peak of volume is more or less periodic for the oscillating overbuy, usually increasing at the last breath of the bullish market. For the decaying one, the peak is long before the last breath of the bull. For the current market, the peak was in the beginning of 2021.
Now that we know the difference, it is evident that the decaying overbuy is a clearer signal. Nevertheless, greed and optimism blind us from what's obvious, that is the current correction.
How about the future then? In the long run, BTC will regain its value and reach more peaks until it doesn't matter anymore and the competition increases with other coins. As for the near future, I am positive that the price will go more negative, probably after flattening a bit. The thing is that the market is losing confidence in BTC as a growth asset, and it's difficult to see momentum building up in a sustainable way in the short term. This would require a fresh bullish market drive, and I am not talking here only about Crypto.
For the cycle to complete, the lower band will be hit eventually, but as it stands at 20000, it is very low, so it won't happen very soon. My prediction is that it would happen when the band nears 38000.
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