Bitcoin Fulfilling 2016 – 2021 Outlook; Major Top Likely in 2021!
05/26/21 INSIIDE Track – “Currency Wars – Rock, Paper, Scissors; a x b = c
5-27-21 – The first five months of 2021 have powerfully reinforced the perspective on the current phase of ‘Currency Wars’ and the ongoing forecast – since 2015/2016 – that Gold and other anti-Dollar vehicles would move higher into 2021 (with accelerated advances projected for 3Q ‘20 – 2Q ‘21) as the Dollar corrected into 2021.
At that point, the US Dollar was/is expected to set a multi-year low while Gold, Bitcoin, et al were forecast to set multi-year peaks. Gold & Silver experienced accelerated surges in March – Aug. ’20 while Bitcoin entered a parabolic move up beginning in Oct. ’20 – just as precious metals were confirming that a 3 – 6 month peak was intact.
That movement corroborated the ongoing perception of this three-pronged currency war, which has been described in two primary ways. The first is viewing the battle between the US Dollar (fiat currency), Gold (hard currency) & Bitcoin (crypto-currency) like a game of ‘Rock, Paper, Scissors’ where only one of the three can have a major rally at a time.
Often one is sitting on the sidelines (in congestion or trading sideways) while the other two battle it out. In 4Q ’20, Gold was ’sitting on the sidelines’ – after surging into Aug ’20 – as the Dollar plunged while Bitcoin entered a parabolic advance. Even though the Dollar was dropping sharply, Gold could not muster any significant rally since all the ‘anti-Dollar’ money was flowing into Bitcoin and other cryptos. Cryptos definitely won that battle.
More recently, Gold has been surging since late-March, the same time that the US Dollar AND Bitcoin peaked. While this was in perfect sync with Gold’s weekly & monthly cycle expectations, metals needed cryptos to step to the sideline since the US Dollar was already expected to see another sell-off. In many ways, it is a three-way battle for currency supremacy… although there are many nuances that need to also be considered.
The second analogy is that of an algebraic equation of ‘a x b = c’ where each factor needs to be adjusted – up or down – when one of the others is moving in a convincing trend.
(The ‘=’ or equal sign demands this. If you had an equation where a = b and you multiplied the ‘a’ side by 3, you must also multiple the ‘b’ side by 3 to maintain its ‘equal’ status… otherwise, it is not an equation.)
While not a perfect analogy, try to view the battle between the Dollar and its alternatives in this type of scenario. For this example (for illustrative purposes only), the Dollar is given a value range of 1 – 10. As a result, the product of its competitors must also equal 1 – 10 (when they are multiplied together), depending on the Dollar’s trend.
A powerful trend would be a 10, while a congested, non-existent (sideways) trend would be a 1… and so on. The direction of that trend must also be factored in since the market in the strongest trend is usually trading inversely to both the other ‘currencies’.
So, if cryptocurrency takes off and is basically a 10, and the Dollar is dropping sharply (also a 10), then Gold must only be a 1 (10 x 1 = 10).
If Gold began to move toward a 4 as the Dollar was still in a solid downtrend, cryptos would have to scale back to a 2.5 (4 x 2.5 = 10)… and so on. Except in a case where the Dollar is in an all-out freefall, Gold & cryptocurrency would be in competition for the attention of anti-Dollar investment funds. (This analogy was even in full display on May 19 – when Bitcoin was in freefall. See 5/19/21 Weekly Re-Lay Alert for details.)
And, yes, this analogy also falters in some key aspects… it is only intended as an illustration to help traders visualize the correlated and non-correlated movements in these markets.
More than anything, its discussion is to challenge those that mistakenly believe there is a consistent correlation or inverse correlation between any two of these factors.
There are other factors as well and I repeatedly warn AGAINST trading any market based solely on correlations or expected correlations. Each market has its own governing factors and fundamentals as well. And the peaks and troughs rarely occur at the exact same time. So this is best viewed as a ‘backdrop’ type of indicator.
Bitcoin has plunged after reaching its major upside objective near 65,000/BT (65,000 – 66,800/BT). That was forecast to trigger an overall correction back to ~29,000/BT – the 4th wave of lesser degree support (and also the 2021 intra-year low). It nearly reached that target but could see a spike down to 28,000 – 30,000/BT before a bottom takes hold.”
Bitcoin has, for all intents and purposes, fulfilled ongoing analysis for a plunge below 30,000/BT after it previously fulfilled early-2021 projections for a surge to ~65,000/BT, where a higher-magnitude ‘III’ (3) wave was expected to peak and complete the parabolic phase of Bitcoin’s advance. (A corresponding ‘V’ wave peak could later retest or spike above that ‘III’ wave top.)
That was forecast to trigger a drop back to ~29,000/BT – its 4th wave of lesser degree support and what is now considered the most decisive level of 6 – 12 month and 1 – 2 year support. A final spike below 30,000/BT is still likely. If it can hold that downside target in the coming months, Bitcoin would likely set a 3 – 6 month bottom near there.
What could 2021/2022 outlook for Dollar & Gold mean for the future of cryptos?
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.