Alessio Rastani and Charlie Burton analyse Bitcoin's rally and debate whether new all-time highs are ahead
Alessio Rastani and trader Charlie Burton discuss Bitcoin's technical picture, sentiment, and the probability of a sustained bull market.
Summary
Alessio Rastani and Charlie Burton examine Bitcoin's recent rally from its summer lows near $57,000–$60,000, debating whether it marks the start of a new bull market or merely a corrective bounce. Rastani notes that a Dow Theory bullish signal was triggered when Bitcoin broke above its spring and May highs, and points to bullish MACD divergences on both daily and weekly charts as supporting evidence. Burton agrees that the low was a technically significant one, formed at a key moving average confluence with mass pessimism as a backdrop, and says he turned bullish at the double bottom. Both agree that while the probabilities favour further upside, neither is prepared to call a move to new all-time highs on a specific timeline. They also discuss the dangers of crowd euphoria, noting that extreme bullish predictions tend to emerge only after prices have already moved significantly higher.
Key Takeaways
FULL TRANSCRIPT
Bitcoin's Recent Rally and the Dow Theory Bullish Signal
Alessio Rastani: Charlie, it's really interesting what we're seeing on Bitcoin. Just recently, Bitcoin managed to take out resistance at the levels at the spring highs and the May highs, which by the way triggered the Dow Theory bullish signal. My good friend and trader Manuel Bllye is essentially saying that Bitcoin has bottomed and, in his view, according to the Dow Theory model, he believes that we're now in a bull market. I have to say that there are other indications as well which seem to corroborate that view — that potentially Bitcoin has bottomed and that we could perhaps see an uptrend developing, despite any pullbacks or corrections that may occur.
I'll get your view on this, Charlie, because I'm interested to hear whether you agree with this view or not. But before I go on, I should say that I recently posted a video on Bitcoin and I noticed that the ratio of pessimistic versus optimistic comments are about even, but it seems that not everybody is bullish. From the comments I've been reading, I would say about half are pessimistic or bearish — they're expecting Bitcoin to retest the lows it formed back near $57,000 or $60,000. The other half are saying, well, of course it's a bottom, of course it's going to go to new all-time highs, it's almost obvious. So they're leaning more towards bullish.
The sentiment I would say right now is mixed. I do think that the more comments I'm seeing are showing disbelief. Reading the comments seems to indicate that the majority of people out there in the Bitcoin community, or watching these videos, seem to be more pessimistic, more bearish. In other words, there's disbelief out there. And by the way, the reason why sentiment is so important is because it's really important to know what the crowd is thinking, because the crowd — herd mentality — is often a good contrarian signal. A great book on this I'm reading right now is The Crowd by Gustave Le Bon, written in the 1890s. Really good book. Crowd psychology is really important here.
What are you seeing, Charlie? What do you think about the sentiment right now around Bitcoin, relative to what it was some months ago?
Charlie Burton: Well, generally speaking, my measures of sentiment this year have shown a lot of pessimism towards Bitcoin and crypto in general. When Bitcoin came down to $50,000-odd, how many people were looking for it to come to $30,000 or $40,000, or even lower?
Alessio Rastani: I've got to say I'm guilty of that too. When it dropped down to the lows — sorry to interrupt you — when it dropped down to $60,000, some of the technicals and the Dow Theory model were essentially showing that the bear market could continue to $50,000. But I will say this: I also saw divergences, positive divergences, which were leaning more towards bullish.
Divergences, Key Levels, and the Technical Case for a Bottom
Bitcoin made a lower low on the daily chart, but with a higher low on the MACD — a positive divergence. We would then need to see an impulsive rally. In order to indicate or increase the probability of a bottom, whether intermediate or long-term, we would have to see a break — an impulsive rally or break above the levels of resistance at $67,264 to $70,512. That's when I began to change my mind towards a rally.
I should say that in the video I posted back on August 20th in the member video, I actually mentioned that Bitcoin could see a rally back up to $77,000 and even $82,000 based on the trend line break. When the trend line broke, Bitcoin managed to break out above this resistance region — the 200 SMA. Keeping it simple, as long as Bitcoin can remain above support, there's potential here for bulls to extend this further higher. In other words, there's potential and probability for a move into the 138.2% and the 161.8% golden ratio extension. That remains the higher probability here. And if this region also breaks, there's also potential for a move eventually to test the region between the 38.2% level at $83,700 to about $80,600, to retest that major resistance high.
However, one thing I wasn't sure about — and still, nobody can be certain — is whether the rally is corrective, just a correction before it drops down again, or whether the rally is the start of a new uptrend. That's actually something I want to talk about with you in this video.
Charlie Burton: Yeah. We had a backdrop of pessimism, and you're right, you can't time pessimism — you have to couple that with the technicals and other information. But certainly we had the backdrop there. A lot of pessimists out there this year. And it's interesting that you said it's mixed even from your comments at the moment. I think that's healthy for the continuation overall — healthy for Bitcoin to go higher.
For me technically, those divergences were the thing. On the weekly charts, I'm sure you'll show that there was a big weekly divergence there. I got bullish once we did the double bottom. And also at that very point — I'm a moving average person — we came into the monthly 50-period moving average. I think it was a trend line on your chart as well. So it was a nice setup: you had negative sentiment, you've got bullish divergences into key levels. That's about all you need.
Alessio Rastani: I did notice a divergence on the weekly chart — I totally agree with you. As a matter of fact, we're getting another divergence with respect to the February low. We can see another positive divergence here as well, and it's much more clear on the weekly time frame. The MACD on the weekly time frame is also showing a positive divergence. I was waiting for a break of resistance — a trend line resistance — which I mentioned back in August, before I could be more confident about a bottom, or in other words about a temporary intermediate bottom and then a rally.
My question is: do you wait for a break of resistance just to confirm or increase the probability of that divergence?
Charlie Burton: No, I'm an aggressive trader. That divergence is a specific pattern that I trade, so I have specific rules and entry rules around that. I don't need to wait for a trend line break in that situation because I have other rules — I only need a half-decent up-closing bar on that given time frame to give the signal for me. So I don't need to wait that long.
Alessio Rastani: You said you're more of an aggressive trader, so it's more aggressive. Does that mean that when you see a divergence, you put a stop loss in place and essentially go with the divergence? So if it's a bullish divergence — a positive divergence — you get long with a wide stop loss, and then either hit your stop, in which case you're stopped out for a small loss, or you get a great risk-to-reward?
Charlie Burton: I mean, Bitcoin is different to me anyway — I don't trade Bitcoin. Trading is using stops and all of that. I'm just a long-term investor in it, unleveraged and all of that. But you can still take the same patterns and have a cut-off. Because there are plenty of people out there who are trading it. Traditionally I would be in long before a trend line gets broken. I just need to see a nice strong up bar, and that will be enough for me once the divergence is in — the up bar — and I will use that. So it's a bit more aggressive, but it does mean that the risk-to-reward ratio is strong as well.
Is This a New Bull Market or Just a Corrective Rally?
Alessio Rastani: My other question to you was this: whether you think the balance of probabilities has now shifted towards a rally to new all-time highs. Or do you think there's still a high probability of a drop or a crash back down to the lows of $60,000 or $57,000? I'm guessing from what you've told me so far that you're more leaning towards the bullish side of things, especially as I just mentioned — a lot of the sentiment, even among social media comments that I've been reading, are more mixed but leaning towards disbelief or the more pessimistic, bearish side, which supports a contrarian view for more potential upside perhaps in the next several weeks and months.
Charlie Burton: Yeah, I am on balance bullish. I think the price action that we've seen even just recently looks very constructive. I'm not necessarily looking for new all-time highs this year — maybe not even next year. But I'm certainly bullish towards it overall. I'm just not entirely sure that we're going to be going to new all-time highs in the next few months. I am bullish on it, and it'll move around — it'll have little pullbacks — but my contention is that the low we put in a few months ago, into a major low on high time frames with a flush in negative sentiment, should be a major low.
Alessio Rastani: As a matter of fact, this is something I mentioned in my videos before — the drop that occurred back in the summer reached a major trend line, a major uptrend line support, held it, bounced, and moved back above the 200-week average. Again, those were strong signs of positivity, a potential bullishness, a potential rally. Of course, one thing we didn't know at the time — and we still don't know — is whether this rally from the summer lows near $60,000 or $57,000 is the start of an uptrend taking us to new all-time highs, or whether it's just a temporary correction which could still go higher but then eventually drop down to continue the bear market. Nobody knows. It's impossible to know with 100% certainty. But it seems the probabilities are leaning towards at least some kind of a bottom — intermediate or long-term — and then the potential for a new bull market, an uptrend.
Whether the uptrend or bull market will take us to new all-time highs — that is the unknown. Perhaps enough information is not out there for us to determine that. But you're at least saying that even if we don't go to all-time highs this year or even next year, there is scope for a rally of some sort taking us higher. Is that right?
Charlie Burton: Yeah, I think that low was a material low. It was a good technical low on high time frames, coupled with mass pessimism out there. I think it's just ideal as a low. The hardest thing is to predict — and I'm not in the prediction business — but I can be bullish overall. I'm not convinced about the timing of when it goes back up, if it is going to get back to those prior highs. That's the hardest thing. But I think there's enough scope in it to still have a nice run even if it doesn't go straight back to $120,000. So yeah, I'm bullish on it.
The Danger of Extreme Price Targets and Crowd Euphoria
One thing I can't say to you is what loads of people out there are saying — that it's going to go to $500,000 or a million or whatever.
Alessio Rastani: That's why I'm not in that business. Just give it enough time, Charlie. I'll guarantee you — as soon as Bitcoin, if Bitcoin at some point in the next few months goes to $100,000 and above $100,000, I'll guarantee there'll be people out there saying, "Oh, $500,000, it's obvious." Those people will suddenly come out of the woods.
Charlie Burton: I had the same thing with silver at the beginning of this year. I had all of that on my channel — people saying, "Oh, Charlie, you're wrong, silver's going to $500." Okay. When are they coming back to wrap you up in that special suit?
Alessio Rastani: That's true. Because anything can happen in the markets, but generally speaking, there are certain levels in markets that are very likely not going to be reached straight away — silver going to $500 or whatever. But Bitcoin — who knows? There are fundamental reasons why it could go a lot higher over the longer term. The timing of that I find a bit more difficult. So for now, I'll remain bullish and I'll just see as and when it can get back to those prior highs.