I wrote a post about Bitcoin a few months back. It was intended to be a primer for those who want to understand it better. If you are new to Bitcoin (BTC), you might want to read it to understand some of the terms I’ll be using here. While I talked about some of my strategies for investing, it was not intended as financial advice. And here I am again making the same disclaimer. I am not a financial adviser. This article is for information and entertainment purposes only. There is inherent risk in all investing, so do your own research.
Back in July, I believed Bitcoin could either drop below $20K or go to six figures by the end of November. Neither scenario played out. While it did reach new all-time highs in November, it then fell about 30% and is now moving sideways between $40-50K. That’s not bad in the grand scheme of things, and I still believe the long-term future for Bitcoin is very bright. But it’s a far cry from breaking $100K, as most of the experts I listened to believed it would do by the end of the year. Their belief, and hence mine, was based on what is called the Four-Year Cycle. I explained that in my previous Bitcoin article.
The Four-Year Cycle should have given us a bull market that should have ended sometime between September and November. Then there would have been a crash, and a long bear market would have followed, though the price would recover to some degree before the next Four-Year Cycle. If the all-time high of $68K we saw in November really was the end of the bull market, the price should have crashed down to about $10K. We have not seen the kind of price run-up or crash we should have according to the Four-Year Cycle, and I think I know why.
On August 20, 2020, Microstrategy became the first listed company to buy Bitcoin. Since then, the company’s CEO Michael Saylor has become one of the most outspoken advocates for Bitcoin, singing its praises as a prime store of value, a hedge against inflation, and key to the company’s long-term financial strategy. Since then, many other corporations and institutional investors have jumped in, notably Paypal, Tesla, Square, ARK Invest, and Pantera Capital, just to name a few. The big money they brought to the market helped propel the price of Bitcoin from $29K on January 1 to a then all-time high (ATH) of $64K on April 14.
While it was exciting to see the price climb and Elon Musk tweet that Tesla added $1.5 billion of Bitcoin to its balance sheet and would accept it as payment, in the back of my mind there was this nagging thought. If anything could change the Four-Year Cycle, this would be it. If whales—big money investors—have the power to move the price up, they also have the power to move the price down.
After April 14, the price dropped some, settling into the $50,000’s, but no one who knew about the Four-Year Cycle was freaking out. It looked like a normal price correction, but according to the Four-Year Cycle, we were still in a bull market. Then in May, a flurry of negative press came out, including Elon Musk reversing his position and saying Tesla would no longer take Bitcoin as payment, citing concerns over its carbon footprint. After that, the price did not just drop. It plummeted as low as $29K before the end of the month, more than 50% off its recent ATH. That is not normal in a bull market. I don’t think it’s normal in any market. One billionaire tweets an endorsement, and the price immediately pumps. A couple months later, same billionaire tweets something negative, and the price immediately dumps. And how many people do you think were really interested in buying a Tesla specifically with Bitcoin? How many people really said, “What? I can’t buy a Tesla with Bitcoin? That’s the only reason I bought it in the first place. I’m selling!” This reeks of manipulation.
What Does Market Manipulation Look Like?
Sometimes markets move. Sometimes markets are moved. Whales are people or entities that have enough money to manipulate the market. They want to buy low and sell high, but they don’t always wait for the price to go up or down. Through strategic buying and selling, they can make the price go up and down.
In the 1930’s, a man named Richard Wyckoff found that market manipulation follows consistent patterns. The big investors who manipulate the markets all act the same way, so he referred to them collectively as “the Composite Man.” When you see signs of manipulation, ask yourself, “What does the Composite Man want, short-term and long-term?” Long term, it’s pretty simple. If it’s an asset they want and believe will go up a lot in value over time, they want to acquire as much of it as possible at the lowest price possible. Short-term, they either want to drive the price down, so they can buy at a discount, or drive the price up to take profit. This goes in cycles. Wyckoff created very detailed charts that show how to recognize what the Composite Man is doing, and the price action of Bitcoin this year has followed those patterns.
Without getting too technical, a Wyckoff pattern occurs in two stages called Accumulation and Distribution. During the Accumulation stage, the Composite Man is buying but careful not to buy too much too quickly. This is when he wants to keep the price low, so he can accumulate a sizable chunk of the asset. When the Composite Man (I’ll call him “the Man”) is ready, he buys more aggressively to drive the price up. The Man wants to tie this to some story or series of stories in the media, so when smaller investors see the price go up, FOMO (Fear of Missing Out) will kick in, and they will rush to buy, driving the price up even further. It works even better if the Man has access to those media channels (or 55 million followers on Twitter) and can push positive stories at the right time.
When the price is as high as the Man thinks he can make it go, he switches to the Distribution stage. This is when he sells off, not all of it, but enough to make the price dip 10, 20, maybe 30% very quickly. Again, they like to time it with some negative story (or stories) in the news. Retail investors who FOMO’ed in now experience FUD (Fear, Uncertainty, and Doubt) and sell to cut their losses, driving the price even lower. When they sell, who buys? That’s right. The Man, the people who created the FUD in the first place. Now the Man is back to Accumulation, and the whole cycle repeats. If you want more detail, here is a video that explains it well.
The End of the Four-Year Cycle?
I’m not saying Elon alone is responsible for this. Remember, the Man here is not one individual but a composite of big money investors. I think the Man had this planned all along, and Elon (wittingly or unwittingly) gave them cover first for Accumulation, then for Distribution. After revisiting its annual low of $29K on July 19, it appeared the Man had accumulated what he wanted, because Bitcoin started going up again. It reached another all-time high of $68K on November 10 before going down again. For the past two weeks, the price has been fluctuating between $42-49K.
The Four-Year Cycle has pretty well-established patterns of bull and bear markets. This kind of movement looks like neither. If $68K in November was the top of this bull market (which is when it should have ended), the price should have dropped about 85%, which would put it around $10K. We would know then the switch from bull to bear market has happened. Why isn’t Bitcoin behaving like it has in the past? I think it’s because this is the first Four-Year Cycle we have seen where “the Composite Man” is going after Bitcoin. Even experts who have followed Bitcoin for five years or more are at a loss to say whether it’s time to take some profit in anticipation of the bear market, or whether the Man will drive the price up one more time.
I’m beginning to think we need to stop thinking in terms of the four-year cycle and start thinking in terms of Wyckoff’s Accumulation and Distribution.
There is one more thing you need to know about the Man. They have a hierarchy of investment priorities for different levels based on risks.
- Traditional markets (stocks and commodities)
- Altcoins (any cryptocurrency other than Bitcoin)
1 is less risky than 2, which is less risky than 3. When the traditional markets are down, they tend to move money out of riskier investments. That means when the traditional markets drop, Bitcoin drops. When Bitcoin drops, altcoins drop. It works the same in reverse. When the traditional markets are up, Bitcoin is up. When Bitcoin is up, altcoins are up. I saw this happen in May. When Bitcoin dumped, my altcoins followed. I traded most of them for Bitcoin and Ethereum (ETH) to wait for the next upturn.
Earlier this month, the traditional markets dropped, so the latest drop in Bitcoin and altcoins can be somewhat attributed to that. But considering that a normal cycle would have had the price down to $10K, a price hovering in the 40’s isn’t so bad. Furthermore, there are indications that a new bottom might be in.
Retail Investors Wising Up
Data shows that the amount of Bitcoin on exchanges is the lowest it has been in a long time. What does that mean? People buy, sell, and trade cryptocurrencies on exchanges like Coinbase, Binance, and Crypto.com. However, most people don’t keep them there. They will keep most of their crypto on a digital wallet because it is more secure. Some popular wallets include Exodus, Coinbase Wallet, and Trust Wallet. These are sites on a blockchain network where you can deposit BTC and other crypto, and you are given encrypted keys to access it when you want.
While there are many factors to consider when trying to determine where the price is going to go, one factor is the amount of BTC on exchanges. When there is a lot of BTC moving from wallets to exchanges, that means people are looking to sell. But when a lot of BTC is moving off exchanges to wallets, that means people are planning to hold for a while. With BTC on exchanges at such a low level as it is now (at the time of writing), the chances of a huge sell-off driving the price down much further are very low.
Furthermore, two of my favorite crypto analysts (Crypto Jebb and Satoshi Stacker on YouTube) showed data that says of the BTC that moved onto exchanges recently, around 5% came from wallets holding less than one BTC. That means despite the recent drop of 25-30% in just the last few weeks, retail (or small) investors are not selling. That also proves while the Man has great power to manipulate the market, that power is limited. If they are trying to scare small (and probably inexperienced) investors into selling at a discount, it is not working. When retail investors see through the FUD and Hodl (not a typo), the game of shaking BTC out of weak hands becomes pointless. I hate that this is part of the game, but if you want to invest in BTC, you have to be wise to the Man’s manipulations. But I am encouraged that other retail investors like me are catching on.
Again, this is not financial advice, but this is why I’m not selling yet. There probably will be a bear market at some time in the future, but this looks more like Wyckoff Distribution at the moment. While I don’t know when or even if it will happen, I think the price has to go up again before another bear market. If it does, that will confirm to me that the Four-Year Cycle is dead, and anyone investing in BTC will need to study Wyckoff in more depth.
I can’t help but think that once the Man sees he has gotten the price as low as he can, he will send the price up again for another round of profit taking. He might spend a few more weeks keeping the price below $50K so he can accumulate more. But his M.O is to drive the price down to accumulate, then drive the price up to take profits, and repeat. I look at the fundamentals of Bitcoin, and they are still strong no matter what the Man says. No one has ever lost money holding BTC for at least four years. Therefore, the only time to sell for me is just before a bear market. That way, when the price drops, I can buy back at a discount, just like the Man. But until then, I intend to keep calm and HODL on.