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Is bitcoin following a market trend?

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Historically, bitcoin has followed an upward market trend, although its behavior is divided into cycles and has not had a permanent upward movement.

A trend is the direction in which the price of an asset moves over a given period. Trends can be bullish, bearish, or sideways.

While in the case of bitcoin an upward trend can be appreciated over the long term, we present an analysis of the evolution of its price, with the aim of finding some distinctive features in this.

1 What is a bitcoin trend?

A bitcoin’s trend is the direction in which its price moves. As with any other asset, the bitcoin trend can be bullish, bearish, or sideways.

Trend within a bitcoin trend

Different types of bitcoin trends can coexist and not contradict each other. This means that there can be trends within a bitcoin trend. It is not possible to characterize a bitcoin trend as bullish or bearish unless it is considered in the context of a certain time scale. For example, on a daily chart bitcoin can be seen in an uptrend, but when considering smaller time frames, with one-hour or half-hour candles, the trend can be seen as downtrending on several of these time frames.

Another useful angle for examining bitcoin’s trend can be found in the. Dow Theorya set of principles, discussed by CryptoNews, that describe the behavior of financial assets in certain situations. Within this theory, one of the principles applicable to bitcoin is the one that proposes that the market has three types of movements, which are divided into primary, secondary and minor trends.

Primary trends a year or so and classify the overall market as bullish or bearish.. In other words, they indicate whether the price of the asset has been predominantly upward or downward.

From these are derived the secondaries, which are maintained for several weeks or months. These, too, describe upward or downward price movements, but they indicate a correction or consolidation toward a particular price.

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Minor trends, lasting days or weeks at most, are minor variations. That can be likened to market noise.. The latter are usually of interest to traders operating with short positions.

2 Types of trends in trading

A trend is considered bullish when there is a succession of rising lows. During the period in which the bullish trend is assessed, the price may fall at any given time, but if the minimum reached is higher than the previous minimum, the bullish trend is maintained.

The daily candlestick chart below shows a clear upward trend between July 12 and July 19.

Upward and downward trend in the price of bitcoin (red arrows). Source: TradingView.

In a downtrend, the opposite phenomenon to an uptrend occurs. A bitcoin price trend is identified as bearish when successive highs follow a downward trajectory, as seen in the chart (red arrows). This occurs during the periods of July 29 to August 4 and August 13 to August 19.

Even if the condition of rising lows occurs, the bullish trend is confirmed based on the time period under consideration.

3 Long-term evolution of bitcoin

As can be seen in the graph below, which shows the evolution of bitcoin since July 2010, a pattern repeats: price growth to an all-time high, followed by a decline to a minimum value at which a new cycle begins.

Evolution of the bitcoin price since July 2009. Source: cryptoNews / barchart.com.

The bitcoin protocol involves halving the block reward every four years or so, through a process called halving. The definition of bitcoin cycles is not based on the minimum value of the price, but on the occurrence of each halving.

The graph shows the dates of each halving and the percentage increase in price at the time of each halving. The successive returns of each cycle are decreasing. Currently, in the middle of the next half-life, the increase in value from the price of the third half-life is 122%.

Bitcoin halves

We refer to the fact that the duration of the cycle is about four years and that the end of one cycle and the beginning of the next are marked by a halving and depend on a certain number of blocks. The first halving occurred at the completion of the extraction of 210,000 blocks on November 28, 2012. The second halving occurred on July 9, 2016 (block 420,000), and the third halving occurred on May 11, 2020, at block 630,000. By April 2024, the fourth halving will occur at block 840,000.

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Despite fluctuations in supply and demand prices, bitcoin’s supply shrinks every cycle. This deflationary characteristic of bitcoin affects the increase in its price, because if the supply is reduced programmatically, the price trend is necessarily upward.

The graph shows that even considering a bearish phase in each cycle, the resulting trend in each cycle is upward. As a result, the bitcoin price trend is increasing.although its appreciation declines with each successive cycle.

4 Bitcoin corrections

After each bitcoin historical high, the price decline has had different characteristics in each cycle. In each of these price corrections from historical highs there are two variables: the magnitude of the fall and the time for price recovery.

The graph below shows the percentage declines, the largest of which reached -93% in 2012. It can be seen that the magnitude of bitcoin corrections does not follow a particular trend, with a 65 percent drop in 2013, followed by an 85 percent drop in 2014.

Bitcoin corrections since 2012. Source: cryptoNews / barchart.com.

This corresponds to the decline from the all-time high in December 2020, which was 82 percent. April 2021 saw the third consecutive correction of decreasing magnitude of 56 percent, which then gave way to the current cycle correction of more than 71 percent. It has not yet been determined whether bitcoin has bottomed in this cycle, so the exact magnitude of the current correction or its duration is unknown.

5 Indicators influencing the performance of bitcoin

There are numerous indicators on the chain that can influence the price, related to the adoption of bitcoins, the evolution of the number of addresses, the average age of coins held by holders, or the willingness to sell or buy of different cohorts of savers, among others.

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Moving averagesMoving averages are a popular indicator for traders. Calculated from the simple or weighted average of the bitcoin price over a number of previous days, moving averages provide useful guidance to traders on possible trends in the bitcoin price.

The number of bitcoin addresses, while not directly corresponding to the number of users, has some proportionality with adoption. An upward trend in addresses generally indicates an upward trend in prices. As can be seen in the following graph of active bitcoin addresses, the two peaks reached in 2017-2018 and 2021 correspond to historical price peaks.

There is a positive correlation between active addresses and the price of bitcoin. Source: glassnode.

Once historical highs are reached, active directions decrease rapidly, which corresponds to a bearish phase in prices.

An on-chain indicator has made it possible to identify the behavior of large holders, in this case bitcoin miners. BTC accumulation, as reported by CryptoNews in July 2022. An upward momentum in the price was inferred from this finding, as it came from a phase of intense selling, profit-taking, and sharp price declines. In fact, the growth in demand led to an increase in price for about a month and a half.

We have seen that despite the cyclical corrections that occur with the price of bitcoin, its expected scarcity in the protocol keeps supply limited, thus highlighting an upward trend in its price over the long term.

To learn more about bitcoin trading, several articles are available on CryptoNews Cryptopedia. You can start with the basics you need to know about bitcoin trading, and then delve into the the various aspects of this activity, including answers to users’ most frequently asked questions about trading the pioneering cryptocurrency.

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