Bulls overconfident in Bitcoin (BTC) would have to fight more than just Elon Musk as a price prediction model, created by pioneering technical analyst Richard Wyckoff more than 100 years ago, also goes against his wild predictions by rise.
Dubbed the Wyckoff Method, the model involves a five-phase approach to determine price trends that primarily involve the psychological reaction of investors to the supply and demand of an asset.
For example, in the case of accumulation, when an asset tends to bottom out after strong downhill price movements, the five phases in order include Sell Climax (SC), Secondary Test Success (ST), Last Support Point ( LPS), Sign of Strength (SOS) and “steps”, which means higher demand for the asset.
On the other hand, the Distribution case appears as a 180 degree version of the Accumulation case, which consists of five phases that follow a strong upward price trend.
Preliminary Supply (PSY) indicates a strong upward demand shift as prices tend to rise while accompanying increasing volumes. However, the uptrend is eventually exhausted, leading to an even called buy climax (BC). A sell-off follows caused by a lack of demand near the asset price stop against abundant supply. Wyckoff called the correction Automatic Reaction (AR).
Together, PSY, BC, and AR do Phase A.
Meanwhile, Phase B involves a false bounce to BC, called a Secondary Test (SET), followed by another dip that shows the asset’s Sign of Weakness (SOW). Phase B also tends to see weak bounce attempts from SOW to Upthrust (UT). Later, the transition to Phase C witnesses a terminal reorganization in distribution, known as Upthrust After Distribution (UTAD).
Phase D involves an alarming demand-versus-supply lapse, also known as the Last Supply Point (LPSY), leading to a total price drop in Phase E.
Bitcoin in ‘Phase C’
Tempting Beef, an independent market analyst, alerted his followers that Bitcoin has entered the accumulation cycle of the classic Wyckoff model. The pseudonymous entity showed recent bounces in the Bitcoin market, apprehensively pointing out the potential for BTC / USD to maintain an uptrend above $ 40,000 due to weakening supply and increasing demand.
“The supply is running low. [It] it could be ready for phase C. “
But Tempting Beef presented a conflicting scenario by reinventing Phase A according to Wyckoff’s distribution schemes. The analyst marked Bitcoin’s rebound from the $ 30,000 low as a sign of PSY, which led to BC, AR, ST, SOW and other successive events mentioned in the distribution phases.
Bitcoin landed again in Phase C, alarming at the depletion of demand in the Wyckoff Distribution Events case. It would mean that the point of lowest risk of the cryptocurrency is to the downside: a drop in prices.
Downward biased techniques
Bitcoin’s latest correction in the spot market came after a year-long rally. Between March 2020 and April 2021, the BTC / USD exchange rate shot up by up to 1,582%, registering an all-time high close to $ 65,000.
However, the pair erased more than 50% of its price rise. Prices tumbled, rebounded and are now consolidating sideways without hinting at a specific short-term direction bias. So it now looks more like a Wyckoff distribution model, as the phases follow a one-year movement up, not down.
Meanwhile, Bitcoin has been consolidating within a symmetrical triangle structure following its sharp downward correction after mid-May, suggesting that the pattern is, in fact, a bearish pennant. Technically, bearish pennants cause prices to go down as much as the scale of the previous move down.
BTC / USD is trading around $ 36,000, or 44.59% below its high of $ 65,000 at the time of writing.