What are the likely consequences of the following historical observation?
The observation that Bitcoin ($BTC ) reaches an all-time high (ATH) followed by a decline over a 2-8 month period is generally correct.
Historically, after reaching an ATH, Bitcoin has often experienced phases of correction or consolidation before resuming an uptrend.
Historical examples:
December 2017: Bitcoin reached an ATH of around $20,000. Its price then declined gradually over several months, reaching around $6,000 in June 2018.
April 2021: Bitcoin reached a new high around $63,000. It then experienced a decline, dropping to around $30,000 in July 2021.
November 2021: Another ATH was reached at around $69,000, followed by an extended decline throughout 2022.
These up and down cycles are influenced by a variety of factors, including investor profit-taking, government regulations, technological developments, and market sentiment.
Bitcoin never reaches two successive ATHs in the same month or week due to the very nature of financial markets:
After an ATH, the market tends to enter a correction or consolidation phase, where investors assess the new situation, take profits or wait for new information before making decisions.
This phase can last from a few weeks to several months, making it unlikely that two successive ATHs will be reached in a very short time.
Additionally, because Bitcoin is a volatile asset, price movements are often followed by periods of adjustment where the market digests previous rallies before potentially reaching new highs.
It is important to note that these observations are based on historical trends and that the cryptocurrency market is unpredictable. Past performance is no guarantee of future results, and it is essential to exercise caution when investing in such volatile assets.
For example, how can we qualify the following reasoning?
(if BTC has just reached an ATH and its dominance is increasing in parallel, can we deduce that everything will probably go down soon?)
Analysis of the reasoning:
1. BTC hits ATH:
Historically, after an ATH, Bitcoin often enters a correction or consolidation phase that lasts several weeks to months.
Investors take profits, which can cause prices to fall.
2. BTC sees its dominance increase in parallel:
This means that Bitcoin is capturing a larger share of the crypto market compared to altcoins.
An increase in BTC dominance often occurs when:
Altcoins are falling faster than BTC → sign of an impending bear market.
Capital returns to BTC after a phase of speculation on altcoins → start of a consolidation or bear market.
3. Deduction: everything will probably go down?
Yes, if dominance increases sharply after an ATH, it can signal a flight of capital out of altcoins, thus an overall market decline.
No, if the increase in dominance is due to a stronger rise in BTC relative to altcoins, this may be a phase where BTC is strengthening before a new bullish push.
Conclusion :
The reasoning is valid in a context where BTC dominance increases because altcoins fall faster than BTC. This often signifies a phase of caution in the market and can precede a general bear market.
However, if dominance increases while keeping Bitcoin stable or bullish, this may be a simple cyclical move where capital repositions ahead of another market rally.
To validate this hypothesis in real time:
Look at the performance of altcoins. If BTC goes up and altcoins go down, it's a bad sign.
Analyze volume and volatility. A sudden drop in altcoins with high volume increases the likelihood of a bearish reversal.
Monitor the overall state of the market. News, macroeconomics, and central bank decisions heavily influence cryptos.
Bottom line: The reasoning is generally correct, but other factors need to be analyzed to confirm an imminent market decline.
