The Bitcoin pump heard ‘round the world has the entire market bullish once again, following Bitcoin’s third-largest one day gain in its history on news that China is in support of the blockchain technology underpinning Bitcoin and other crypto assets.
Even the most bearish crypto traders have flipped bullish on Bitcoin, however, the spike could simply be a throwback according to Wyckoff’s distribution model, which would suggest that the rally is not only over, but that the real markdown phase will begin next.
Introduction to Wykoff Theory on Market Cycles
Richard Wyckoff was a stock market trader and editor of the Magazine of Wall Street. His work was focused on the logic behind market trends and developed the “Wyckoff Method” as a means to determine certain phases an asset may be trading in. The principles behind the theory are still used commonly even today and is often brought up by Bitcoin traders.
Wyckoff market cycle theory breaks down trading activity into four distinct phases: accumulation, mark up, distribution, and mark down.
When Bitcoin was trading between $3,000 and $4,000 in early 2019, it was a classic textbook example of an accumulation phase, according to Wyckoff’s theory. Once the leading crypto asset by market cap broke up and out of that range, mark up began, and the price quickly rose by over 300% to $14,000 in the matter of a few months.
However, the market then switched to distribution – a phase where buyers that accumulated at the lows begin to sell the asset to secure profits, which floods the market with supply. Eventually, supply outweighs demand, and the price of an asset begins to fall, signaling the start of the mark down phase.
Bitcoin Pump May Have Been a Throwback Before Mark Down Truly Begins
Bitcoin’s latest pump of over 40% might have crypto traders once again talking of moon and Lambos, however, the pump may be nothing more than an extremely powerful throwback to retest resistance of the distribution zone, before falling further and kicking mark down into high gear.
To demonstrate how Wyckoff theory may apply to current Bitcoin price action, one crypto analyst has drawn a falling wedge pattern over a Wyckoff distribution schematic.
I’m not convinced with this weekly close guys, I’m sorry for not being bullish like everyone else. I guess somebody has to be the bear right? or at least have a Conservative approach
Here is something to keep in mind among all the bullish and hopium charts ? pic.twitter.com/pNWo6PIO9Y
— ?????? ? 丝绒 (@888Velvet) October 28, 2019
The pattern Bitcoin price is currently trading in is a near-perfect replication of Wyckoff’s model, and would suggest that the latest move was a throwback before mark down ramps up. According to the analyst, the target of the downside move could be closer to where Bitcoin broke out of its accumulation range, near $5,800.
Related Reading | Wyckoff Logic Suggests Bitcoin Mark Down Has Only Just Begun
Despite the continued downside the analyst is predicting, Bitcoin is in a clear falling wedge pattern – which often appears as bullish reversal patterns. Even if Bitcoin does enter a mark down phase from here, the structure will likely break up sending Bitcoin back to retest highs where distribution first occurred, and if the range can be reclaimed, Bitcoin will likely next set its sights on reclaiming its all-time high at $20,000.