BTC/USD: Euphoric Sentiment and Realistic Price Actions

In this post, I'll be shedding light on a few technical and fundamental factors worthy of taking into account.

For reference, check out my other post from September, where I discussed the importance of Bitcoin breaking the long term descending trend line, and how it should be considered a sign of strength.

Bitcoin has been on a major bullish rally ever since March 2020, moving up close to 400% from the local bottom to local top.
Interestingly enough, unlike past bullish rallies, there hasn't been much media coverage leading up to this bull run.
This rally is also different from those of the past in that it's fueled by institutions, rather than buy volume from retail investors.

For this analysis, I'll be providing my own thought of a probable scenario based on price action, market sentiment, and technical & fundamental factors.
It's important to note that there is absolutely no guarantee that it'll play out in this manner. It's merely one of my probable cases.

With that said, let's dive right into the analysis!

Technical Analysis
- We can begin by looking at the Relative Strength Index (RSI), which is an indicator that helps traders tell whether an asset is overbought or oversold
- The RSI is currently trading at overbought territories, and we can see from past data that signs of the RSI being overheated indicates probability of a local top.
- We can also count Elliott Waves on the weekly chart. Specifically, Elliott Impulse Waves (12345)
- There are certain rules to keep in mind when counting impulse waves such as:
- The second wave cannot go lower than the first wave
- The third wave can never be the shortest wave
- The fourth wave cannot fall below the first wave
- Wave 2 played out by closing between the 0.618 and 0.786 Fibonacci retracement levels of Wave 1
- We are currently seeing Wave 3, the longest impulse wave, play out
- Not only is this sort of price action unsustainable, but also from the perspective of Elliott Waves, we could expect a possible correction soon
- The fact that there is strong resistance at 18.9k substantiates this case
- In terms of Wave 4, we could expect a correction down to the 0.236 Fibonacci retracement level of Wave 3
- This is also the level in which the long term bullish ascending trend line, which extends from March 2020, converges with the fibonacci support.'
- As for Wave 5, a rule of thumb is that we can expect the same degree of impulse wave to play out as Wave 1

Investors' Sentiment
- As for the investors' sentiment based on certain phases of the market cycle, I recommend that you check out my previous analysis on Ethereum.
- While it's technically a different asset, it demonstrates a paired market cycle with Bitcoin, and the information in that post can be applied to Bitcoin as well.

- With the current parabolic trend, it could be said that investors are quite euphoric
- Despite price actions not demonstrating any pullbacks, and moving at an unsustainable pace, many people seem to think that Bitcoin is going to break all time high levels easily
- Unfortunately, the market does not move in straight lines.
- Once the real pullback starts taking place, people are going to start thinking that this is just another failed rally
- As such, to be profitable over the long term, it's important to identify significant support/resistance levels, and overall trends
- A correction to 15.4k at this point is still considered bullish, but a 20% correction is enough to scare a lot of people away

Fundamental Analysis
- Some miners are selling their Bitcoins but not that many are, or at least not as severely as the past bull trends
- The amount of Bitcoin deposited at exchanges is still at relatively healthy levels.
- Normally, a huge inflow of Bitcoins into exchanges indicates that whales are ready to sell their bags.
- Transaction dormancy also demonstrates that long term holders of Bitcoin have been selling their Bitcoin since the start of this rally after a breakout
- Nevertheless, with companies such as Paypal (PYPL) and Square (SQ) showing institutional interests in Bitcoin, we could expect a bullish trend over the long term based on fundamentals.

Summary
In conclusion, I've taken into consideration a plethora of factors that point to one probable scenario, in which we'd see a correction before another rally breaking all time high levels. Nevertheless, since predicting the market is impossible, keep in mind all the probable scenarios, and simply respond to price actions. The future is something you prepare for, not something you predict.

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I would also appreciate it if you could leave a comment below with some original insight :)

Trade active:

As anticipated, Bitcoin corrected over 11% from the local top.
This was not hard to expect, given the historical resistance near all time high levels, as well as the fact that we haven't had any proper corrections in price actions, let alone a pullback.

Let's take a look at the current daily chart:

- We can see that prices, despite having dropped severely, could still be considered overextended.
- We have strong fibonacci retracement supports at 17.2k and 15.8k
- The 0.236 Fibonacci support converges with the 20 Simple Moving Average (SMA), acting as strong support
- The trend line extends from Dec. 2019, and converges with the 0.382 Fibonacci support.
- The moving averages are all aligned in order, indicating signs of a strong bullish trend overall.

Play it by levels. Don't try to predict the market. Look for confirmations with breaks of significant support and resistance levels.