Bitcoin (BTC) has once again crashed hard in a long time. The price is currently sitting at a critical trend line that extends all the way to late 2011. The above monthly chart for BTC/USD shows that this trend line has never been breached in the last seven years. So, what are the odds that it might be breached this time and what will be the repercussions if this trend line is broken? To answer these questions, let us first look at the rest of the indicators on the chart. If we look at the volume profile, we can see it is still in a steady decline. The RSI is nearing critical levels and is primed for a reversal.
Both of these are strong indicators that Bitcoin (BTC) is poised for a trend reversal, but there is more to it. If we look at the Elder’s Force Index (EFI) profile on the above chart, we can see the strength of moves up and down. For the past few months, the EFI has been flattening. This means that it has been preparing for a strong move up. Throughout the history of Bitcoin (BTC) a flattened EFI has led to two distinct events. The first is a trend reversal and the second is a trend continuation. The trend reversal that follows a flattened EFI is a strong one and it sees the price reaching a new all time high. The trend continuation pattern after a flattened EFI is a very weak one.
In this case, the trend continuation would be a bearish continuation. The price cannot make big moves to $4,000 or $3,000 because the EFI has flattened out. This does not mean though that the price cannot fall to those levels. It simply means that if the price were to fall to those levels, it will not be in the manner we saw yesterday. The price will have to decline over a period of an additional 12 months or longer to reach those levels. Considering that we have Baakt and Fidelity all set to get into the game in the months ahead, it is unlikely that we may see a bear trend continue for that long. Besides, if the price were to fall to $4,000, it would have to break the seven years long trend line.
If that trend line is broken, talking about $4,000 or $3,000 would be useless because there would be nothing holding BTC/USD back from falling to even lower levels, like the $1,000 level that Craig Wright is aiming for. It is important to note here that this is not about a price. If Bitcoin (BTC) breaks the seven years long trend line, it will deal a serious blow to any bullish resolve. Investors will be completely clueless as to what to expect next. That kind of uncertainty has the potential to kill the entire market considering that it is still in its infancy. In my opinion, there are a lot of stakeholders with much higher stakes than Craig Wright or Jihan Wu who simply cannot afford to let that happen.