Despite its strong recovery in recent weeks, a spooky fractal has the potential to push the price of Bitcoin (BTC) down to $25,000 or more. The mysterious upside-down head-and-shoulder pattern from 2018 threatens to obliterate the recent price spike in the Bitcoin market. What levels are next?
Similarities in Bitcoin price cycle
The fractal was first coined by crypto analyst CryptoBullet and shows a resemblance to the reverse head-and-shoulders pattern that dropped Bitcoin to $3,100 in December 2018. As a result, there is a possibility that the price of BTC will drop. It will decrease at the same rate in 2022. This is because of the obvious similarities in price movements between the 2018 and 2021-2022 market downtrends. For example, while developing an inverted head-and-shoulders pattern, Bitcoin recorded two HH levels above $10,000 in April and May 2018 before dropping below $6,000 in July.
Interestingly, Bitcoin followed a similar price formation from October 2021 to February 2022, forming two HHs. About $65,000 in April and $69,000 in November. In early February, the price corrected below $33,000, creating another upside-down head-and-shoulder. As this formation is bullish, BTC is currently waiting for a breakout above $50,000 or higher. Analyst Lark Davis predicts that Bitcoin will cross $60,000 based on a similar technical scenario.
The bulls could fall into the trap of the 2018 Bitcoin price fractal
However, an increase above $50,000 or even $60,000 may not be enough to stave off Bitcoin’s pessimistic trend. As seen in the chart below, if the 2018 fractal repeats itself faithfully in 2022, BTC has a higher chance of pulling back to $25,000.
Bitcoin, for example, bounced back after a head-and-shoulder back in 2018 and reached nearly $10,000. The price of BTC momentarily recaptured the 50-week EMA (red line) as support as a result of this, but then fell below it. The price continued to drop and eventually reached the 200-week EMA (blue line) at $3,000, where it bottomed out in December 2018. If the same fractal is applied to the current price action, Bitcoin could close above its 50-week EMA and reach levels between $50,000 and $60,000. However, it will return to the bottom of its red line and continue to decline towards the 200-week EMA, currently around $25,000.
Will there be another 2018?
On the plus side, Bitcoin is moving against more optimistic fundamentals than it did in 2018. The price of BTC soared from under $4,000 in March 2020 to over $69,000 in November 2021 due to the surge in individual and institutional adoption fueled by macroeconomic threats including:
In his analysis from November 2021, John Authers of Bloomberg Opinion writes that headline inflation, as measured by the consumer price index (CPI), has increased by nearly 28% over the past decade. Specifying the same metric in Bitcoin, on the other hand, resulted in 99.99% deflation. However, the math came with a warning note:
If you invested your entire life in Bitcoin ten years ago, well done. Is this something you should be doing right now? Probably not. In the last 10 years, Bitcoin has deflation a lot, including 76% in the last 12 months alone, plus a few terrible events where annual inflation is over 200%.
Interestingly, the “terrible episodes” occurred during the fall cycles of 2015 and 2018.