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Wyckoff Distributions & Bull Market Tops
The Wyckoff Distribution Schematic seems to have outlined Bitcoin’s local top perfectly:
And while this schematic is valuable, it’s often not applicable to timing Bull Market tops. Why?
Because Bitcoin tends to top out after parabolic run-ups, when the market is most euphoric, when “new paradigms” are declared etc.
A Wyckoff Distribution Schematic essentially highlights periods of distribution. That is, when price forms a range whereby price cannot go any higher before breaking down from it and distributing.
A distribution range is much like an accumulation range, or a re-accumulation range.
Essentially, it’s all about consolidation.
Re-Accumulation ranges precede further trend continuation.
Accumulation ranges precede entire new macro uptrends.
Distribution ranges precede distribution, but more commonly into corrective periods rather than new macro downtrends.
A brief look at historical Bitcoin Cycle Tops showcases the volatile, blow-off top nature of Bull Market Tops:
Lots of combustible emotions are at play during Market Cycle Tops, whereas during Bitcoin’s multi-month consolidation (i.e. distribution) at highs - people were more bored with Bitcoin more than anything else (though dedicating a special focus to Altcoins and rightfully so at the time). Not quite euphoric Bitcoin sentiment.
So while Wyckoff Distribution ranges don’t commonly occur at Bitcoin Bull Market Tops, they do tend to occur during Bull Markets.
After all - distribution ranges precede corrective periods.
And a great example of that is the August 2020 period:
Bitcoin experienced a Wyckhoff distribution followed by a textbook crash before bottoming out on the correction and continuing to new All Time Highs:
But there is no denying - this recent -53% crash was historic.
Much like the March 2020 crash was where BTC saw a -63% crash.
March 2020 vs May 2021
What’s interesting about these two periods isn’t the depth of their corrections, but the RSIs for both of them:
This recent -53% crash means that Bitcoin has now reached the oversold region on the RSI (i.e. sub RSI = 30) for the first time since the March 2020 crash.
BTC is now at RSI 20 whereas in March 2020, the RSI was 15.
The last time BTC reached such oversold conditions on the RSI, price capitulated, panic sellers sold, bargain buyers bought, and Bitcoin reversed into a new uptrend.
Given the retracement depth as well as a similar RSI, it’s worth studying these two together because both of these corrections were anomalous by standards of history.
If you compare the periods highlighted in orange, the price fluctuations inside those periods are quite similar to one another, once juxtaposed.
Which is why it may be useful to continue to compare them going forward.
And if they continue to be similar, then it’ll be important to watch for whether this current downside wick that we’re seeing on BTC is indeed the capitulation wick to kickstart the bottoming out process…
And whether BTC can begin to formulate a consolidation period at these current highs, perhaps to form a Flag from which price will breakout to begin the reversal.
After all, volatile capitulation bottoms occur via V-Shaped reversals, followed by consolidation periods to stabilise price, before trend continuing.
Where Could Bitcoin Form A Range Now?
One of the most positive things about price right now is that BTC pulled back into the low $30000s (i.e. thin orange box), produced a long downside wick (yellow) just like earlier this year and proceeded to reverse towards the upside.
What this could be setting price up for is a period of consolidation inside the low $30000s to $38000s like so:
If that turns out to be the case, whereby $38000 turns into resistance and rejects price, it’ll be important for BTC to form a Higher Low to affirm a consolidation period but nonetheless an uptrending market structure, similar to how Bitcoin formed one back in March 2020 upon bottoming.
If this May 2021 crash continues to be similar to the March 2020 crash, then this scenario is likely to play out.
Another scenario worth watching out for would be if this ~$38000 resistance area actually flips into support:
That would not only form a micro Higher Low relative to the capitulation low, but also form a macro Higher Low relative to the January lows:
In which case Bitcoin could set itself up for a macro Ascending Triangle.
The week is still young and lots can still change in the current Weekly Candle but $38000 seems like the trend-decider at the moment.
Thank you for reading.