Overly confident Bitcoin (BTC) bulls would have to fight more than just Elon Musk, as a price prediction model – developed more than 100 years ago by technical analyst pioneer Richard Wyckoff – also contradicts their wild upside forecasts.
The model, known as the Wyckoff Method, involves a five-phase approach to determining price trends, which primarily involve the psychological reaction of investors to the supply and demand of an asset.
In the case of accumulation, for example, when an asset tends to bottom out after strong price movements, the five phases of the order include Selling Climax (SC), Successful Secondary Test (ST), Last Point of Support (LPS), Sign der Strength (SOS) and “stepping stones” – that means more demand for the asset.
On the other hand, the distribution case appears like a 180 degree version of the accumulation case, consisting of five phases that follow a strong upward price trend.
The preliminary supply (PSY) signals a strong upward shift in demand, as the price trend rises with simultaneously increasing quantities. However, the upward trend is ultimately exhausted, which even leads to what is known as a buying climate (BC). What follows is a sell-off caused by a lack of demand near the asset’s price stop against an abundant supply. Wyckoff called the correction automatic response (AR).
Together PSY, BC and AR form phase A.
Meanwhile, Phase B involves a fake rebound towards BC called the Secondary Test (SET), followed by another drop showing the asset’s sign of weakness (SOW). Phase B also typically sees weak attempts to rebound from SOW towards upthrust (UT). Later, when transitioning to Phase C, there is a final cleanup of the distribution known as Upthrust After Distribution (UTAD).
Phase D involves an alarming drop in demand versus supply, also known as the Last Point of Supply (LPSY), which in Phase E leads to a total drop in prices.
Bitcoin in “Phase C”
Tempting Beef, an independent market analyst, warned followers that Bitcoin has entered the classic Wyckoff model’s accumulation cycle. The pseudonymous company has flashed recent rallies in the Bitcoin market, worrying about the potential of BTC / USD to sustain a bullish trend above $ 40,000 due to weakening supply and increasing demand.
“The offer is exhausted. [It] could be ready for phase C. “
But Tempting Beef presented a contradicting scenario by reinterpreting the Phase A schemes per Wyckoff Distribution. The analyst marked Bitcoin’s rebound from a lows of $ 30,000 as a sign of PSY, leading to BC, AR, ST, SOW and other consecutive events mentioned in the distribution phases.
Bitcoin landed again in phase C, which, in the case of Wyckoff Distribution Events, alerted about exhaustion of demand. This would mean that the cryptocurrency’s slightest risk is to the downside – a price crash.
Technique distorted downwards
Bitcoin’s recent correction in the spot market came to light after a year-long rally. Between March 2020 and April 2021, the BTC / USD exchange rate rose as much as 1.582%, reaching an all-time high of $ 65,000.
However, the pair wiped away more than 50% of its price rally. Prices plummeted, rebounded, and are now consolidating sideways without indicating any specific short-term directional orientation. Hence, it now appears more like a Wyckoff distribution model, as the phases follow a year-long upward movement rather than a downward movement.
Meanwhile, after its sharp downward correction after mid-May, Bitcoin has consolidated into a symmetrical triangle structure, suggesting that the pattern is – in fact – a bearish pennant. Technically, bearish pennants lower prices as much as the extent of the previous downward move.
BTC / USD is trading at around $ 36,000 as of this writing, or 44.59% below its high of $ 65,000.