Summary Bitcoin has broken down and could re-test the $20K level, erasing the immediate bullish case. A sell-off ahead of the halving is in line with previous cycles, and altcoins may outperform. Bitcoin's technical outlook and historical evidence suggest a potential sell-off/distribution phase before the halving. Altcoins may have already bottomed or be close to it. Thesis Summary After trading in a range for the last few months, Bitcoin (BTC-USD) has finally broken down. From a technical perspective, this erases my more immediate bullish case, and I believe we could now re-test the $20K area. A sell-off here ahead of the halving would be very much in line with how Bitcoin has behaved in previous halving cycles. If, indeed, history is repeating itself, we might actually see the altcoins outperform now, so this might be a good time to start dipping our feet in. The Bitcoin Chart With the latest sell-off, which took us below $20K, I now expect Bitcoin to retest lower levels: BTC 1D chart (Author's work) From an EWT perspective, we can make the case that BTC has formed a 5-wave impulse to the upside. This is not the best structure, in my opinion, with such a short wave 5, but it is, for the moment, the most bullish case I can make. While I originally thought that BTC could be setting up for a breakout higher, the latest sell-off has changed this dramatically. Firstly, if we zoom into the more recent action, we can see that we have retraced over 78.6% of the last rally (wave 5). BTC 4h chart (Author's work) Though a set-up for higher isn’t technically invalidated until we break below the low set in June, odds have now strongly increased that we are heading down first. Looking back at the daily chart, we can also appreciate that BTC has broken below the 50 and 200-day MAs and also below the trendline support. Momentum has clearly shifted, and bears are in control. So, where can we expect to find support? The 61.8% retracement of the whole rally from the October lows takes us all the way down to $20,400. We can also see, as marked by the VRVP, that this is a strong area of volume, and this is also close to where the Realized Price is, an on-chain metric that reflects the market’s average Bitcoin cost. Is this just like last time? As I have pointed out numerous times before, a sell-off/distribution phase ahead of the halving is exactly what you would expect, given historical evidence: BTC price in 2020 (Author's work) Before the last halving in 2020, Bitcoin rallied all the way up to $14,000, actually getting quite close to its previous all-time highs. From there, it sold off over 70%. We can see that it actually even reached the 88.7% retracement level. It’s worth mentioning that BTC did dip just below its realized price at its lowest point, though it reversed quite quickly. They say history rhymes, and this could certainly be the case with Bitcoin. Not only does the technical outlook support this but so does the macro environment. Treasury yields are continuing to rise above what a lot of people expected, and the dollar is, for the time being, showing strong signs of strength as other currencies like the Yen and Yuan struggle. With that said, China is beginning to ease its monetary policy, and the Fed should be near the end of its hiking cycle. The short-term outlook is not great, but in the medium term, the environment should be more supportive. Another Lesson From History One of the highlights of this year in crypto has been the increase in the Bitcoin dominance, meaning that Bitcoin has been outperforming the other cryptocurrencies. BTC dominance (TradingView) As we can see above, BTC dominance reached close to 52% as the BTC price broke above $30K. However, we have seen a strong reversal following the latest sell-off. Altcoins are once again outperforming BTC, and this is also what happened last time. BTC dominance 2019 (TradingView) In this chart, we can see BTC dominance and the BTC price in orange back in 2019-20. The black lines outline the period when BTC slid from its $14K high down to $3K ahead of the halving. Notice how BTC dominance consistently fell during this period and, in fact, continued falling until September. If this is the case again, and based on my analysis of many of the altcoin charts, then a lot of the altcoins could have already bottomed or be very close to putting in a bottom. Takeaway In conclusion, I think that BTC could be set to re-test the $20K level. This would be a great spot to buy and should set us up for the halving rally. In the meantime, crypto investors would be well advised to look at opportunities in altcoins, which could really begin to outperform in the coming months.
