Bitcoin – Elliott Wave Count

Elliott wave is a theory that dates back to the 1960s. Bull markets climb three upward waves (1,3,5) with two corrections (2,4) during bull markets, followed by two corrections (A,C) with only one upward move (B) during bear markets. There are various rules about the third wave not being the smallest and so on. It’s a good theory for making sense from the gargantuan rallies, but I believe it’s a huge mistake to apply it to normal situations. For example, the Euro versus the Yen is not a particularly interesting relationship and wave counts are meaningless. However gold in the 1970s, the Nikkei in the 1980s or Dotcom in the 1990s were powerful bull markets where this theory worked well. It gave investors a road map of what to expect. Elliott wave helps to make sense out of the chaos. Cryptos are the boom of our time and our Elliott wave count fits like a glove.



Chart note: The chart shows the Bitcoin price on a log scale since 2010. In our opinion there have been two bull markets and we are now in the third. Atlas Pulse suggested in December 2013 that a wave 2 correction was imminent. The clue was the excessive media interest at that time. Looking at previous regressions, a 65% to 85% fall seemed likely. Although we have only seen a 55% drop on closing prices, a 63% correction has already occurred on an intraday basis. We are not suggesting that wave 2 is complete but it may well be. What really matters is the next new high. Thereafter, $10,000 (or so) is the target for wave 3 which may be achievable in 2014.  A new all time high ought to occur this side of Easter 2014.

wave count table


Table note: The table shows the returns of Bitcoins from the highs and lows over various dates. Elliott wave purists will point out that wave three in bull market one is the smallest. Whilst that’s disallowed under the Elliott rules, Atlas Pulse does not believe that this must be true, as the rules themselves are unproven. Instead, we believe that the wave count should be based around the bear markets which have been devastating, -96% in 2011 and -75% in 2013. We are currently at, or near to, the bottom of wave 2 in the third bull market for Bitcoin.

$1,000 for Bitcoin matters – it’s a big round number

When gold first briefly passed $1,000 in March 2008, it fell back and took 81 weeks of consolidation before leaving it behind in September 2009. The Nasdaq was no different in July 1995 , where it touched 1,000, it didn’t give that level the final kiss goodbye for another year. The Dow hit a 1,000 in 1966, not to break out until 1982; a 16 year wait. The Bitcoin bull is happening so much faster than these predecessors, but the heavy news coverage is normally a very bad thing during a bull market. This big-round-number hasn’t worked on prices or indices that had little fame. Bitcoin most certainly does.

The point is that once Bitcoin finally clears $1,000 with a firm closing new high, we will never see that level again during our lifetimes. If you believe in Cryptos, then just buy them and hold them, as materially higher prices will be with us by Christmas 2014. In the mean time, there is a reasonable chance that Bitcoin collapses again during this wave 2 correction. We have no idea whether it does or doesn’t, but if it does, what a great opportunity that will be.