Bitcoin Analyst Claims “Simple, Profound Pattern” Hiding in Plain Sight for Years in Crypto Markets
What happens when an experienced forex trader starts analyzing cryptocurrencies? In a blog post last week, Cole Garner answered that question and revealed a “simple, profound pattern” that can predict cryptocurrency prices.
Garner has seven years of experience as a forex trader. 12 months ago, he started analyzing cryptocurrency markets. He describes his latest blog post as “the single most important thing I learned in 12 months of intense study.”
“One market dynamic stands above all others as most important for investors and traders to understand. It’s a pattern — a simple, profound pattern that’s been hiding in plain sight for years.”
What did Garner discover? Let’s take a closer look.
The Lifecycle Of A Financial Bubble
First, Garner talks about the lifecycle of a financial bubble. A financial bubble goes from a stealth phase to an awareness phase to a mania phase to a blow off phase. Smart money gets in early, then institutional investors, and finally the public. The value of the asset climbs steadily during the early days before rising to an all time high once the mania gets into full swing. Eventually, the markets collapse, then return to the mean.
Although the chart posted by Garner looks like an abstract representation, it’s not: it matches other financial bubbles nearly curve for curve. Garner posts charts showing the 1929 stock bubble, for example, and the 2000 Dot Com bubble. They match perfectly with the financial bubble chart. Bitcoin’s valuation in 2017 is also similar.
That’s because the underlying pattern directly reflects global market psychology — the invisible hand of mass financial consciousness, at the largest possible scale.”
Garner claims the chart takes on “a whole deeper layer of meaning” when you use it to analyze crypto markets.
Bitcoin Has Had Four Bull Runs And Four Crashes
Garner claims that bitcoin has had four bull runs, including in 2011, early 2013, late 2013, and 2017. Each of these bull runs rank among the most dramatic bull runs in history in terms of growth percentage.
Following each of these historic bull runs was a historic collapse. However, each collapse ahs dropped bitcoin to a higher low. The third bitcoin bubble, for example, led to the crash of bitcoin down to the $200 to $300 range. Today, bitcoin is hitting lows of around $6,000 after its latest bull run in 2017.
Bitcoin’s Market Cycle Can Be Classified Into Four Stages
Bitcoin’s market cycle can be classified into four stages. By understanding these phases and timing the markets correctly, you can maximize your profit:
Stage 1) Accumulation
This stage lasts many months. Everything is low: prices are low, expectations are low, and volatility is low. Investors are wary about the previous crash. We may have already hit the bottom, but investors are worried that the markets could still fall out.
During this stage, institutional investors, whales, and smart money that sold at the top and shorted on the way down are buying back in before the cycle starts over.
“This is the period of greatest opportunity,” writes Garner, “and ironically (and unsurprisingly) the period when financial media and the public pay the least attention.”
Stage 2) Bull Market
The bull market begins with “a widely-anticipated regulatory fundamental news event” acts as a catalyst to push prices “to levels unseen since the early days of the bear market.” At this point, social media sentiment turns bullish. Investors are confident and excited.
The price grows incrementally then retraces in cycles. Each cycle looks like three steps forward followed by one or two steps back, lasting roughly 3 to 6 weeks.
Several growth cycles pass. Eventually, the old all-time high is reached. People who bought at the last top are freed of their burden, reducing sell pressure across the marketplace. FOMO continues driving the price upwards.
Garner describes this process as bitcoin moving “3 steps forward, 1-2 steps back.”
Stage 2) Part Two: Parabola
Without notice, markets take a turn. Instead of taking three steps forward, two steps back, markets suddenly begin taking three steps forward, no steps back. At this point, bitcoin’s price grows at a parabolic rate and retail FOMO becomes a global phenomenon.
Celebrities start buying bitcoin. Bitcoin searches are at an all time high. Exchanges are overwhelmed by new account signups.
Institutional investors and smart money, meanwhile, are scaling out. Experts begin claiming that the price will never again go down. Retail buyers who sold in frustration after the last crash are now buying back in as the price approaches its top.
Historically, in the bitcoin market, this phase has been surprisingly consistent, lasting approximately 5 to 7 weeks.
Stage 3) Smart Money Takes Profit
The rise of the markets is over. Crashes price violently, dropping about 25%. Price surges briefly in an effort to retake the all time high. Retail investors think it’s just a healthy correction and aren’t selling. Altcoin markets go on a huge bull run as profits take out of bitcoin are diversified into altcoins.
At this point, whales and institutional investors have exited their positions and are now shorting the futures and derivatives markets.
This period of the bitcoin market has historically lasted 6 to 8 weeks. Anybody who sells in profit during this period did a great job.
“Cryptotwitter is bullish,” at this point, writes Garner.
Stage 4) Bear Market
Weeks of sideways price action are interspersed by sharp, violent drops. Retail investors who haven’t been through a full market cycle fail to take profit and start losing money. Anybody who bought at the top is now at risk of selling the bottom.
Cryptotwitter and crypto gurus keep telling investors to “buy the dip” and that “alt season is just around the corner.” Brief rallies appear to indicate a new bull market, but there’s eventually one final drop that happens with high volume, triggering an impulse wave of stoplosses and panic selling.
By the time the carnage is over, bitcoin has dropped 80% from its all time high.
Then, the accumulation phase starts again.
Conclusion: Bitcoin’s Market Cycle Is The “North Star” For Crypto Investors
Garner concludes his post by arguing that bitcoin’s market cycle is the North Star for cryptocurrency investors. You can invest more intelligently if you know your position in the market, using the financial bubble chart as your North Star.
Garner also writes that bitcoin’s fundamentals “have literally never been stronger.” He cites increased institutional support for bitcoin by the New York Stock Exchange and Goldman Sachs, for example, and better technology in the bitcoin network.
Based on all of this information, Garner claims that there’s a high probability we’re facing another bull run in the future. Smart investors should embrace the opportunity today, then take profit at the height of the market cycle.
Cole Garner’s full analysis post is worth a read here. Or, follow him on Twitter at @ColeGarnerBTC.