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A surge above $40,000-$42,000 would not safeguard Bitcoin from the potential of a large price drop later, according to a century-old price prediction model developed by technical analyst giant Richard Wyckoff.
Overconfident Bitcoin (BTC) bulls would have to contend with more than just Elon Musk, as a price prediction model developed more than 100 years ago by technical analyst pioneer Richard Wyckoff also contradicts their wild upward projections.
Dubbed as Wyckoff Method, the model involves a five-phase approach to determine price trends that majorly involve investors’ psychological reaction to an asset’s supply and demand.
In the case of accumulation, when an asset tends to bottom out after a sharp price move downhill, the five phases in order are Selling Climax (SC), Successful Secondary Test (ST), Last Point of Support (LPS), Sign of Strength (SOS), and “stepping stones” — which indicates increased demand for the asset.
On the other hand, the Distribution case appears like a 180-degree version of the Accumulation case, consisting of five phases that follow a strong price trend upward.
The Preliminary Supply (PSY) indicator indicates a significant upward demand shift as prices rise alongside growing volumes. However, the upswing eventually exhausts, resulting in what is known as a purchasing climax (BC). It comes after a sell-off caused by a shortage of demand near the asset’s price stop versus an abundance of supply. Wyckoff referred to the adjustment as an Automatic Reaction (AR).
Together, PSY, BC, and AR make Phase A.
Meanwhile, Phase B consists of a simulated bounce towards BC known as the Secondary Test (SET), followed by another decline that reveals the asset’s Sign of Weakness (SOW). In addition, poor rebound attempts from SOW towards Upthrust are common in Phase B. (UT). Following the transition to Phase C, there is a terminal shakeout in distribution known as Upthrust After Distribution (UTAD).
In Phase D, there is an alarming breakdown in demand against supply, often known as the Last Point of Supply (LPSY), which leads to an all-out price crash in Phase E.
Bitcoin has entered ‘Phase C.’
Tempting Beef, an independent market expert, informed his followers that Bitcoin has entered the classic Wyckoff model’s Accumulation cycle. The phantom organisation pointed to previous Bitcoin market bounces as apprehensively pointing to BTC/ability USD’s to prolong a positive trend over $40,000 on diminishing supply and growing demand.
“Supply is getting exhausted. [It] could be ready for phase C.”
But Tempting Beef presented a conflicting scenario by reimagining Phase A per Wyckoff Distribution schematics. The analyst marked the Bitcoin rebound from $30,000-low as a sign of PSY, leading up to BC, AR, ST, SOW, and other successive events mentioned across the Distribution phases.
Bitcoin has once again entered Phase C, raising concerns about demand depletion in the case of Wyckoff Distribution Events. It would imply that the cryptocurrency’s point of least risk is down – a price crash.
The technicals are weighted to the negative.
Following a year-long surge, Bitcoin’s latest spot market slump emerged. The BTC/USD exchange rate increased by much to 1,582 percent between March 2020 and April 2021, reaching an all-time high of $65,000.
However, the pair’s price surge was wiped out by more than half. Prices fell, rebounded, and are presently consolidating sideways, with no indication of a distinct short-term preference for direction. As a result, it now looks to be a Wyckoff Distribution model, with the phases moving higher rather than downward over the course of a year.
Meanwhile, Bitcoin has been consolidating within a symmetrical triangular structure following a severe downwards correction around mid-May, implying that the pattern is, in reality, a bearish pennant. Technically, bearish pennants push prices down by the same amount as the prior move.
BTC/USD is trading at around $36,000, or 44.59% below its $65,000-top as of this time of writing.