Long-Term Bitcoin Analysis: Where is BTC from an Investment Standpoint?

After Bitcoin’s latest sell-off, which took the most valuable coin down by 30% in two weeks, the question arises that is it still in a bull (rising) market or a bear (falling) market. Easy question, right? Well, not so much, as it all comes down to what time-frame we are talking about.

To spoil the answer, from a long-term standpoint, we are still in a rising market, meaning that odds favor higher prices ahead in the coming months. To be frank, in traditional asset classes, following a 70% decline like the recent plunge in Bitcoin, people would think that we are out of our minds to say that it is still a bull market (in stocks -20% is already considered bear market territory), but traditional assets don’t usually rise 20 times in a year too.

Also, for a lot of traders and investors, the less than three-month long downswing already qualifies as a long bear market, so we don’t want to argue on definitions, let’s just look at what matters; how should you navigate through the current market, and why we think that this is still likely a bull market.

A side-note: For context, reading our article from December on the nature of the late-2017 run-up could be useful.

A Weekly Look

BTC/USD, Weekly Chart

Looking at the plain weekly chart of BTC, the recent decline is nothing more than an overbought consolidation pattern, with no major support level broken. Of course, we understand that a weekly chart in crypto world is a bit too much, and very few investors base their decisions on it.

Your humble analyst also bases his investment decisions on the daily and 4-hourly charts, but for perspective, it’s good to take a look at the really long-term chart from time to time.

The Daily Chart

BTC/USD, Daily Chart Analysis

Let’s move on to the daily chart, where the structure of the 2017 bull run is clearly visible. Here, the weekly consolidation is a more structured correction (or corrective bear-market, as you prefer), but to place it in context, it only erased around one month of preceding gains. That is how extreme the 2017 run-up was, and that has both positive and negative implications for the future.

The positive is that all that happened in the last three month is that BTC pulled back after a huge rally- even if it was a 70% pullback…- with only the two steepest major uptrend lines of the run-up being broken, as of now. So, we arrived to the explanation of why we still treat BTC as a bull market, but when would that change?

Examples of Previous Post Run-Up Markets

Here is the catch though, as if you read the article that we already quoted, these kinds of speculative run-ups often lead to long and grueling corrections or bear markets, and right now we simply don’t know if one is already started or not.

Bitcoin’s 2013 Surge and the Subsequent Bear Market

We don’t have to go far away from BTC to see how those look like, just look at Bitcoin’s 2013 rally and the following bear market. Of course, that was a completely different universe, but you get our point.

Ethereum’s 2017 Run-Up and Correction, 4-Hour Chart Analysis

Also, Ethereum had a similar run-up in 2017 (seen on the chart above), that was followed by a 5-month consolidation, which is actually very similar in structure to Bitcoin’s current pattern since December.  And then again, there is the Nasdaq which only recovered its 2000 highs recently, after almost 20 years…

So which one will it be?

Hindsight Bias and the Limits of Technical Analysis

The answer is that we don’t know for sure. Why? Because of the limits of forecasting, and more precisely technical analysis.

No approach will work all the time, no analyst or guru will call every top and bottom and trend, not even close. Imperfection is an inherent part of investing, as we are dealing with probabilities, events in the future that can’t be predicted.

While looking at price charts, a vast majority of people fall into the trap of hindsight bias, meaning (in this case) that just because something happened in a way means that it was meant to happen that way.

That’s a false and very dangerous assumption, because if you project that to the future, you will think that you, or I or anyone else knows what will exactly happen. Don’t get me wrong, on the long run, you can have an educated and highly likely prediction of where cryptos or other assets will be, but short- and mid-term, the best you can do is to gauge the probabilities.

What’s Next for BTC?

That’s how we will deal with Bitcoin’s current situation. So until we are above the first major long-term support zone, in the $5000-$5600 area, we (and our trend model) will assume that we are in a bull market and new highs are ahead.

As the coin will get short-term overbought, and investors will be advised to buy again (as it was the case from the 2nd of February up until $11,500).

Below that zone, our model would switch to bear market rules (even as the secular trend would still be intact) and be generally more defensive, until the declining trend is intact.

Once again, we are still not in bear market territory, but let’s see a guide for the most important strategies.

Strategies in a Bear Market (If that is Ahead)

What does that mean for you? It depends on the strategy that you apply, but let’s see the main strategies that we advocated previously.

  • Buy and hold, without caring about day-to-day (or even month-month) fluctuations
  • Buy and hold a core position and add on the major dips; a very powerful strategy
  • Buy a certain amount every week or month, and even-out your entry price, without the hassle of timing the market
  • Try to catch major turning points to reduce and “re-boost” your position
  • Trade short-term movements with stop-losses, targets, and strict risk management (this is trading not investing)
  1. The strategy wouldn’t change at all for those averaging in the investment, the third strategy in the list.
  2. Buy and holders who believe in the future of BTC shouldn’t care about bear markets, as they supposedly hold the coin for years and years, and if they think that the valuation is low enough they should buy more.
  3. Buy and hold with a core position: here the most important change is that you should prepare that the steady string of new all-time highs will stop until the bear market lasts. Also, the risk of selling everything near the bottom, given the panicky sentiment in those moments is very high.
  4.  (and 5.) Those trading cryptos or trading “in” to their holdings (the last two strategies) should be aware that bear markets are much harder to trade, with high volatility, violent sell-offs and feel good rallies that eventually fail. Reducing position sizes and applying stricter risk management is advised.

We will keep you updated daily as always, and as for altcoins, we will publish our long-term outlook for the majors during the weekend. Stay tuned.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.