K33 Research, formerly known as Arcane Research, has published a report which suggests Bitcoin investors should follow the old Wall Street adage “Sell in May and go away.” The saying suggests that investors should sell their stocks in the summer and buy them back at the end of the summer to avoid a seasonal decline in the stock market.
In their Bitcoin-related report, senior analyst Vetle Lunde writes that the current drawdown and recovery cycle is strikingly similar to the pattern of the 2018-19 bear market in terms of length and trajectory. If history repeats itself, Bitcoin could peak at $45,000 in as little as one month, around May 20, 2023, according to the analyst.
Similarities Of The Current Bitcoin Rally To 2018
The research is based on an analysis using fractals of previous drawdowns and previous lows. “While no one should expect a 1:1 mirroring of the current drawdown to previous drawdowns, the resemblance to the 2018 drawdown is staggering,” writes Lunde, who shared the chart below.Bitcoin recovery from cycle bottom, 2018 vs 2022 | Source: K33 Research
The analyst found similarities in both the duration from peak to bottom and the recovery path. The lows of the current cycle and the 2018 bear market cycle lasted both about 370 days.
The return from peak to bottom is also strikingly similar. After 510 days, it was 60% in both cycles. The only minor difference is that the decline from peak to bottom in 2018 was slightly higher at 84% than in 2022, when BTC bottomed at 78% from the all-time high.
The conclusion that Bitcoin will reach its local high around May 20, 2023 comes from the fact that in 2018, the bear market rally peaked 556 days after the 2017 high, on June 29, 2019, with a drawdown of 34% from the high. Lunde therefore predicts:
While history is far from likely to repeat in a similar fashion if the fractal were to continue – BTC would peak around May 20 at $45,000.
As for the reasons for the strong similarities, Lunde has no “satisfactory” explanation. The best explanation, according to Lunde, is the pragmatic behavior of long-term holders of Bitcoin, who even after the sharp drawdown prove their “diamond hands”, meaning they do not sell, and instead use the phase to accumulate.
Moreover, according to Lunde, the current rally has all the hallmarks of a “hated” rally – “a rally where holders feel underexposed after a highly traumatic year, where investors are de-risked in anticipation of further downside,” as Lunde writes, finding another similarity in this:
The hated rally of 2019 ended with a significant blow-off top before BTC resumed trading at a 40-60% drawdown from its 2017 ATH.
Remarkably, K33 Research is not the only analytics firm predicting a local high for Bitcoin in the mid $40,000s. Glassnode co-founders Jan Happel and Yann Allemann write in their latest newsletter that the market is currently showing extreme strength, which is why the next big target is $35,000 before $47,000.
“This is still the outlook just as we expect much higher prices into late Q2 and Q3,” write the analysts, who focus their attention primarily on macro data and the dollar index (DXY). The latter, according to the Glassnode co-founders, will fall into the 91-93 range before the end of the year, which would be extremely bullish for Bitcoin.
At press time, the Bitcoin price traded at $29,340.BTC price, 1-hour chart | Source: BTCUSD on TradingView.com
Featured image from iStock, chart from TradingView.com