Back to $40K First Before Heading to $75K?

March 11, 2021

While such percent pullbacks are the norm for this cryptocurrency, the question remains: is the current rally only a “dead cat bounce,” or is BTC heading for new all-time highs straight away again? Using the Elliott Wave Principle (EWP) I will try to answer that question and present the most likely answer. Unfortunately, there are no certainties in the financial markets, but plenty of if/then scenarios.

Figure 1. Bitcoin daily chart with detailed EWP count and technical indicators.

The Elliott Wave Principle still suggest a next leg lower first before moving higher

This February decline is what I call an “initiation wave,” red wave-a in figure 1, and has set in motion a more extensive correction: black wave-4 in Figure-1. After an initiation move, there’s always a “dead cat bounce first before the next leg lower starts. In EWP-terms, this counter-trend rally is called a B-wave. B-waves always consist of three smaller waves: a, b, c. In Figure-1, I have labeled the B-wave in red and its smaller waves in green.

IMHO, green wave-c of B is now underway or has possibly already been completed, and red wave-c should ideally target around $41K. Why is that? Because 4th wave (black major-4) often retrace approximately 23.60-38.20% of the prior, same degree 3rd wave (wave-3), shown with the black box. Besides, C-waves are usually equal to the length of the A-wave. Since red wave-a went from $58.4K to $42.9K, and the current red wave-b rally should typically top around $54.7K to $ 56.1K, the next leg lower (wave-c) should thus target about $39.2-40.6K. Are you still hanging with me?! As you can see, this price target range fits well with the 23.60% retrace level mentioned prior.

C-waves can, however, extend and, in this case, go as low as $29.8K, which is close to the 38.20% retrace at $32.2K, but for now, I prefer the upper end of the black box as in Bull markets downside often disappoints and upside surprises. How do we know the next leg lower is in order? It is confirmed on a move below the end of red wave-a low, but warning bells will already be ringing on a break below yesterday’s low ($49.3), followed by a break below the green wave-b low at $46.3K.

Now, BTC can have one more trick up its sleeve as 4th waves of this magnitude are often more a sideways affair where recent gains are digested more in price than time, i.e., a trading range is made. This means the red b-wave/bounce can even target as high as $64.3 (ranging from $56.9 to $64.2) before that pesky C-wave takes hold, i.e., “the rug gets pulled from under,” as they say, bringing the price back to $40+/-2K once again. That would be called an irregular flat in EWP terms: see here. How do we know if this tricky B-wave pattern is evolving? Break and daily close above the ATH, with the first warning on a daily close above $55.9K.

Bottom line

shorter-term, I am looking for this counter-trend rally to fizzle out soon before we see the next leg lower. Since BTC is in the heart of the most strong Bull market leg, it can see a dead cat bounce exceeding the recent ATH. Thus, before one is brave (or stupid) enough to short a raging Bull, the price will have to -at least- close back below $46.3 to suggest the $39.2-40.6K range is ideally next from which the next multi-week leg higher to $75K can start.

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