Blocksmith Says: Bitcoin Base Forming Ahead of Bounce

17 October 2022

I’m taking a broader view of Bitcoin today just to check long-term bearings. It’s easy to get stuck down in the weeds and obsess over every zig and zag of near-term price action. That path can lead to madness and the danger is not being able to see the wood for the trees.

I’ve plotted the arc of the best estimate of the 18-month cycle that we expect to see in all market data.  Sometimes the wavelength is a little longer than 18 months and sometimes it’s a little shorter. 18 months is just the long-term average of a very specific cycle and some variation is to be expected. The point is that cycles analysts know roughly where it should be and the current working hypothesis based on sensible cycles analysis is that the mid-June 2022 low was an 18-month cycle trough.  

This means it’s still very young (just 18 weeks old) and its status must therefore be: up. 

The next cycle down is the 40-week cycle and there is a harmonic ratio of 2:1 with the 18-month. Because of this, very typically we see the theoretical peak of the 18-month cycle cave in as the 40-week cycle bottoms about mid-way. This creates a classic “M” top structure and we can clearly see that in the chart here. So we are pretty sure that we are looking at an 18-month cycle and that it should be rising smartly with it as a tailwind. And yet prices are not really rising.. 

So could it be that we have not yet seen the 18-month trough and it lies ahead of us still? Maybe, but then its wavelength is starting to vary too much from the long-term average, so it’s a lower probability. 

Could it be that the 43% rally from the June low was the entire up swing of the 18-month cycle and it just peaked? Maybe, but bear in mind the last run up in the 18-month cycle was 630%.. so 43% is just too tiny. It’s feasible, but if it is the case that the new 18-month cycle topped in August then the 18-month is heading down and we are looking at total price annihilation (i.e sub-US$8,000). So does that make sense? Not really, bearing in mind we are expecting a recovery in gold and the S&P500 in November.   

Also note that price has been jogging along two highly important long term levels: the 2017 top and the 2015 uptrend line. If the 18 month had topped, we would expect those levels to be sliced through like a hot knife in butter.. and yet they hold. 

Such is the life of a technical analyst, we have to piece it together and eliminate the less likely scenarios.  It’s more art than science a lot of the time. I stay with the view that Bitcoin is trying to form a base and that the 18-month cycle up power should kick in again soon.  

Christopher Grafton
Christopher Grafton

Chris has been working in the markets for over 15 years variously as a broker, analyst and researcher. He is the author of a well-known book on Hurst cycles analysis, and runs his own market analysis software platform on Bloomberg. He’s also a keen student of both the cello and Brazilian Jiujitsu.

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