Bitcoin Stuck in Bearish Elliott Wave Pattern Despite 47% Rally, QCP Capital Says

In wave theory, market trends unfold in five waves, three of which represent the primary trend and the other constitute partial retracements. Bitcoin's year-to-date rally seems to be a retracement ahead of the final leg lower, the crypto trading firm said.

AccessTimeIconFeb 23, 2023 at 10:22 a.m. UTC
Updated Feb 23, 2023 at 5:02 p.m. UTC
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Bitcoin's (BTC) resurgence this year has convinced many analysts the crypto bear market has ended and the path of least resistance is to the higher side. QCP Capital suggests otherwise.

According to the Singapore-based crypto options trading giant, bitcoin's 47% year-to-date rally looks like a "bear breather" within a broader slide that began November 2021, and the final leg of the bear market could soon resume.

The analysis is based on Elliot Wave theory introduced by Ralph Nelson Elliott in 1938 in his book, "The Wave Principle." The theory assumes that asset price movements can be predicted by observing and identifying a repetitive wave pattern.

Elliott found that market trends unfold in five waves, of which Waves 1, 3, and 5 are "impulse waves" representing the primary trend. Waves 2 and 4 are "retrace waves," representing a temporary "breather" to the preceding impulse waves. An important rule is that the first wave tends to be roughly the same size as the fifth, and the third wave is usually the longest.

In QCP's analysis, bitcoin's slide from November 2021's record high of $69,000 to the January 2022 low of $39,000 represents Wave 1 and the subsequent bounce to $48,000 through March 2022 represents Wave 2 – a bear breather, or temporary partial retrace of the preceding slide.

The crash from $48,000 to the November 2022 low of $15,480 represents Wave 3, and the recent bounce constitutes Wave 4 – a bear breather similar to Wave 2.

Next up is Wave 5, which in QCP's analysis could push the cryptocurrency down to the Wave 3 low of $15,480, if not deeper.

"A potential double top is forming against the August 2022 correction high, and May 2022 reaction is low at 25,300," QCP Capital's market insights team said in an update published Wednesday. "Above that, we have the huge 28,800-30,000 resistance, which is the Head and Shoulders neckline. Until these levels break, our 5 wave count still remains valid, with a final Wave 5 lower to come."

QCP's analysis comes a week after former Goldman Sachs analyst William Noble told CoinDesk that the cryptocurrency is primed for a rally toward $56,000.

Identifying waves is an art. It is a subjective call. Each wave can can be broken down into sub-waves, as seen below, which makes the analysis quite challenging compared with traditional Dow Theory.

Bitcoin's early 2023 resurgence constitutes Wave 4 of the broader five-way bearish structure that began in November 2021. (QCP Capital, TradingView)
Bitcoin's early 2023 resurgence constitutes Wave 4 of the broader five-way bearish structure that began in November 2021. (QCP Capital, TradingView)

The chart by QCP shows the five-wave bearish structure, with the fifth and final wave lower yet to unfold.

Wave 4, identified by the year-to-date gain, has stalled around $25,000, a resistance level dating back to the August 2022 high. A turn lower now would confirm a potential double, as pointed out by QCP, and may signal the beginning of the Wave 5 sell-off.

The bearish five-wave structure will be invalidated should the ongoing Wave 4 rises above the resistance range of $28,800-$30,000.

Bitcoin changed hands at $24,300 at press time, per CoinDesk data.

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CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.


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