Trader outlines conditions for Bitcoin bear market

A practicing trader and founder of the project Crypto Shaman Vadim Shovkun, discusses the current market situation.

\n\n

It is almost impossible to determine a reversal and the onset of a bear market for Bitcoin. The price could fall to the $40,000–$38,000 range and even below $30,000. Yet the situation can change at any moment, and media personalities may resume attempts to pump the price. Where can one finally forget about growth and in time form the right strategy?

\n\n

To gauge cryptocurrency behavior, a good idea is to study the response of the S&P 500. Over the last five years Bitcoin has shown a high degree of correlation with the index, about 98.6%. Why should we pay attention to it now? The worrying downturn in the stock market has correlated closely with Bitcoin’s recent slide, and a further decline in the index would negatively affect the leading cryptocurrency.

\n\n

This relationship is described in detail in the article, and here is the correlation chart:

\n\n

\n\n

Now let’s take a look at the four-hour chart of the S&P 500:

\n\n

\n\n

Below the 4,487 level (-0.71%), a move below the PoC of the last up-wave will occur, which would be the first negative signal for the crypto market. Until the index price returns above this level, seeking any long positions on Bitcoin could risk being stopped out.

\n\n

A break of the 4,399 level (-2.59%) would push quotes below the PoC of the previous wave; the price would also break decisively out of the one-and-a-half-year wedge (though a small chance of a rebound remains). In this case, one could consider partial profit-taking on long-term portfolios in altcoins and Bitcoin. You could also start cautiously trading a scalping account on the short side.

\n\n

A drop below the 4,350 level (-3.72%) would provide full confidence that the bear market has already begun. This level is the PoC of the previous growth wave, as well as a clear signal to exit the rising one-and-a-half-year wedge, excluding any chances of a false breakout. Additionally, the LH&LL structure will begin to form. When the index falls below this level, holding any cryptocurrency may risk getting stuck in positions for several years. The primary priority in the digital-asset market will become working from the short side.

\n\n

The overall picture for the S&P 500:

\n\n

\n\n

It is quite likely that the potential correction could reach -70% from the peak and surpass the last low from March 2020. The fact that in recent days the index has fallen by less than 1%, while Bitcoin has crashed about 20% from its peak (with clear time correlation) says a lot. It is hard to imagine what the crypto market would do if the stock market fell by 50-70%.

\n\n

Subscribe to ForkLog news on VK.

\n