Lately, if you have been going on social media (which we pretty much all do), you probably have noticed countless calls for a so-called “Crypto Echo Bubble”.
In this week’s write-up, we are going over exactly what an “Echo Bubble” is and why, in my opinion, crypto is most likely not in one.
Let me explain:
An Echo Bubble
First and foremost, let’s start by stating that an Echo Bubble is a term used to refer to market conditions after a major drawdown before new lows are made.
Essentially an Echo Bubble is a synonym for a ‘Dead Cat bounce’, a.k.a. a short-term upside movement before the price reaches new lows.
⦁ Why crypto is not in an Echo Bubble
For an asset class to be in an Echo Bubble, there first needs to be a “real” bubble that has busted.
If we take a look at the most important chart in all of crypto, the total market capitalization (ticker: TOTAL), what I see is a massive macro bull market and not a bubble.
Elliot Wave-based technical analysis on the weekly timeframe on the total crypto market cap would suggest that we are actually in a big 5 waves up structure.
When trying to grasp impulsive (Elliot) Wave counts, there are a couple of essential rules.
For one, wave 2 of the five-wave structure can never retrace to a lower level than the wave 1 low.
Secondly, wave 3 is the most impulsive (violent) wave.
Lastly, the wave 4 correction cannot retrace to a lower level than the wave 1 high.
As of right now, all of these basic Elliot wave rules are (still) being respected on the significant timeframes.
The wave 2 low indeed made a higher low than the wave 1 low;
Wave 3 is indeed the most impulsive wave;
Wave 4 is still holding a higher level of support than the wave 1 high.
This essentially means that my bias is directed toward us being in the early stages of the final and fifth, impulsive wave to the upside.
The main characteristic of wave 5, is that it creates a higher high than the wave 3 high, which means that, in my opinion, there never has been a bubble.
Moreover, this technical analysis would suggest that those who turn max bearish at these levels, for whatever reason, and are calling for a dead cat bounce/Echo Bubble, are likely to wait for new lows on Bitcoin for a very, very, very long time (if it even ever comes).
⦁ The main takeaway
The main takeaway of this write-up is this:
The way the market is set up is to lure people in around tops and to scare them out around bottoms. There is no need to let this happen to you.
Also, always be mindful of what sources you are getting your information from.
Chances are incredibly high, that people calling for a dead cat bounce right now, are actually the people that bought the top, and never sold, having a lot of built-up negative feelings and emotions towards the crypto market, and therefore creating unnecessary FUD.
As it stands right now, crypto has simply retraced to a higher level of support. People who have called for ‘crypto bubbles’ have been proven wrong for more than a decade now, and it is very likely that this is going to be the case again, going forward.
BTC_Jay out
