This week's market movements have underscored the herd mentality investors exhibit during times of widespread fear. When recession fears spiked due to disappointing employment data last Friday, correlations across various risk assets moved close to one. This resulted in significant hits to Bitcoin and ETH, alongside equities, commodities, and interest rates, despite the fundamentally different nature of each of these asset classes.
Despite the current volatility, I'm confident that Bitcoin has the potential to trade above $85,000 by year-end. This confidence is rooted in the application of the Elliott Wave Theory to Bitcoin's price movements. This theory, grounded in market psychology, captures the emotions driving investor behavior, such as fear, greed, and the fear of missing out (FOMO).
Please note that this is not financial advice. Predictions or forward-looking statements included here do not guarantee future performance and you should not make investment decisions based on them.
Read more: Is it too late to buy Bitcoin? Ledn Experts review
Understanding Elliott Wave Theory
Elliott Wave Theory suggests that assets with sufficient liquidity, like Bitcoin, move in predictable patterns that reflect market psychology. The theory captures these patterns of collective behavior and uses the predictable nature of market psychology to forecast future price movements.
The ‘waves’ reflect the stages of collective investor behavior, from initial buying to eventual selling. External events like ETF approvals, economic policies, and political changes can influence price movements, acting as triggers rather than the core reasons behind the wave patterns.
During an upward trend, these patterns typically manifest as five distinct waves, while corrective movements occur in three waves. Each primary wave can be further subdivided into smaller waves, mirroring smaller-scale market psychology.
Investors often follow the crowd. If the majority are buying, people feel compelled to buy. If the majority are selling, they rush to sell.
This collective behavior drives significant market movements. When many investors act similarly, it can lead to rapid price increases or decreases.
I prefer Elliott Wave Theory over other models due to its predictive nature and ability to project future price movements. It captures market psychology effectively and provides a structured framework for understanding price trends. The theory has demonstrated empirical accuracy in predicting market movements over hundreds of years.
Read more: The Role of Bitcoin in the Economy
Bitcoin's Current Wave Patterns
Bitcoin's price movements from late 2022 show a bullish trend. There are two potential wave counts for the rest of the year: one projecting a rise to $85,000-$95,000 by year's end, and another suggesting a peak at $110,000-$115,000 following a minor correction.
Wave 1: Begins gradually as early investors buy in after a significant sell-off.
Wave 2: Serves as a corrective wave, often retracing a portion of Wave 1's gains. This wave reflects a period of consolidation where some early profits are taken.
Wave 3: Marked by rapid price increases as more investors jump in, driven by FOMO.
Wave 4: More complex and corrective, setting the stage for Wave 5.
Wave 5: Latecomers push prices higher before a significant correction.
Where Are We Now?
We are likely in Wave 4, a corrective phase that typically follows the rapid price increase of Wave 3. Wave 4 is often marked by more complex price movements and tends to consolidate the gains made in Wave 3 before setting the stage for the final push in Wave 5.
Unlike the simpler Wave 2, Wave 4 often involves more complex price movements. It can take the form of a zigzag, flat, or triangle pattern, reflecting market indecision.
During this time, investor sentiment typically becomes cautious. There is a consolidation phase where the market absorbs the rapid gains of Wave 3.
Wave 4 usually finds support above the peak of Wave 1. If the price falls below this level, the wave count might need re-evaluation.
Future Drivers of Bitcoin Price
Several factors might drive Bitcoin's price higher this year as Wave 5 gets underway, including regulatory changes, economic conditions, and political events.
When the first Bitcoin ETF was approved back in January, it caused a significant price spike. This illustrates how external factors, such as regulatory approvals, can influence market psychology. Investors saw the ETF approval as a legitimizing step for Bitcoin, prompting a rush to buy. Similarly impactful events on the horizon include:
ETH ETF: A rising tide lifts all boats. Similar to the Bitcoin ETF, the potential approval of an Ethereum (ETH) ETF could drive prices higher. Traditional finance investors might jump into the crypto market, boosting demand across all cryptocurrencies.
Inflation: With central banks cutting rates, inflation could rise again. Historically, Bitcoin has been seen as a hedge against inflation, potentially driving more investors to buy Bitcoin.
Politics: The election of pro-Bitcoin political figures, such as Trump, could positively influence Bitcoin prices. His positive stance on Bitcoin might encourage more institutional and retail investment.
What does this mean for you?
So to recap, as market fear dissipates, I believe Bitcoin could reach new highs, possibly trading well above $85,000 by year-end.
If you’re prepared to sit tight and HODL, Ledn is a great place to store or leverage your Bitcoin with its Growth accounts, Dollar loans, or B2X loans.
Disclaimer
This article is sponsored by 21 Technologies Inc. and/or its subsidiaries (“Ledn”) and is for general information, discussion, or educational purposes only and is not to be construed or relied upon as constituting legal, financial, investment, accounting, tax, estate-planning, or other professional advice or recommendation. Please read Ledn’s full Risk Disclosure Statement and Disclaimers.
