Not only will the overconfident Bitcoin (BTC) bulls have to fight for Elon Musk, the price prediction model devised by pioneering technical analyst Richard Wyckoff more than 100 years ago also flies in the face of their wild expectations.
The model, called the Wyckoff method, includes a five-step approach to determining price dynamics, which mainly involves the psychological reaction of investors to the supply and demand of the asset.
For example, in the case of accumulation, where the asset tends to bottom after a sharp downward movement in price, the five stages in order include oversold (SC), successful secondary test (ST), last support point (LPS), strength sign (SOS) and “ steps” – which means increased demand for the asset.
Wyckoff events and phases during accumulation. Source: Stockcharts.com
On the other hand, the distribution case looks like a 180-degree version of the accumulation case, consisting of five stages after a strong upward trend in price.
Wyckoff events and stages during distribution. Source: Stockcharts.com
Advance Supply (PSY) indicates a strong upward shift in demand when price action increases and then increased volumes follow. In the end, however, the trend intensifies, even leading to the so-called overbought (BC). This is followed by a sell-off caused by a lack of demand in the area of freezing asset prices on the back of excess supply. Wyckoff described correction as an automatic response (AR).
PSY, BC, and AR together constitute phase A.
Meanwhile, stage B includes a false bounce against the BC called a secondary test (SET) followed by a new low showing signs of weakness in the original (SOW). Stage B also usually sees weak bounce attempts from the SOW vs. Upthrust (UT). Later, the transition to Phase C saw a final shift in distribution known as Upthrust After Distribution (UTAD).
Phase D is associated with disturbing demand over supply, also known as last point of supply (LPSY), which leads to a complete price disaster in Phase E.
Bitcoin in Phase C
Tempting Beef, an independent market analyst, warned his followers that Bitcoin is entering the accumulation cycle of the classic Wyckoff model. The pseudonymous device showed a recent recovery in the Bitcoin market, which understandably indicates the possibility that BTC/USD maintains an upward trend above $40,000 as supply decreases and demand increases.
“The stock is exhausted. [He] may be ready for Phase C.”
But Tempting Beef presented a controversial scenario, reimagining Phase A to fit a Wyckoff distribution. The analyst noted the resurgence of bitcoin from the $30K low as a sign of PSY, which led to BC, AR, ST, SOW and other subsequent events mentioned above in the distribution stages.
Wyckoff’s conflicting scenarios appear in Tempting Beef’s Bitcoin Market Watch. Source: Twitter
Bitcoin finds itself in phase C once again, which indicates demand exhaustion in the event of a Wyckoff propagation event. This means that less risky cryptocurrency niches will find themselves at a disadvantage – a price disaster.
Perverted technology out of favor
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 fluctuated by as much as 1,582%, peaking at around $65,000.
However, the pair dried up more than 50% of the price rally. Prices have collapsed, recovered and are now consolidating sideways, with no specific short-term directional jitters. So it now looks like a Wyckoff distribution model, in that the phases follow a year that moves up rather than down.
Meanwhile, bitcoin consolidated within a symmetrical triangle structure after a sharp corrective shortfall after mid-May, indicating that this pattern is in fact a bearish flag. Technically, bearish pennants push prices down as much as the previous downward movement.