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08.12.2021 08:37 AM
Bitcoin plunges to $42,000 and breaks wave structure: analysis of positive and negative wave scenario for BTC/USD

Before Saturday's collapse, bitcoin was considered to be in the process of forming the final fifth wave of growth in a five-wave structure. Most analysts predicted that this would be the final wave of growth, during which the main cryptocurrency would hit a new high near $100,000. However, subsequently, the asset violated the key rule of the wave structure and fell below the high of the previous wave. Considering this aspect, the question arises: what wave is bitcoin in now and should we expect a final bullish rally in 2021?

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Notably, there is no single rule in the construction of the wave structure and each trader draws the levels independently. However, as of December 3, bitcoin was considered to be in the formation stage of the final fifth wave of growth, and the structure itself looked as follows.

However, after the emergence of the new coronavirus variant Omicron, the release of the Fed's unemployment report and another attempt of Evergrande bankruptcy, bitcoin broke the previous wave high at $52,900. This caused the existing five-wave structure to be disrupted, resulting in a revision of the analysis. I came to two opposite conclusions, one of which I strongly dislike. Let's analyze it:

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According to the chart, bitcoin has completed a five-wave rising pattern and has moved into a prolonged correction stage, which will later transform into a full-fledged bear market. This is a negative scenario, as in this case, the potential for the price decline equals the area of $25,000-$30,000. As of December 7, BTC/USD quotes are recovering as part of stabilization after the impulse fall. If this scenario proves true, bitcoin will not be able to break the high area of the fourth wave at $52,700 and will start declining. I will consider it a bearish sign, as in case the price falls to $43,800, the formation of Head & Shoulders pattern on the daily chart will be completed. Notably, this pattern of technical analysis means a reversal of the trend (in this case from upward to downward). In other words, it will indicate the beginning of a full bear market.

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The second scenario is more optimistic. According to it, bitcoin is within the fourth wave with a complex two-level structure. This theory is supported by the minimal percentage difference between the two tops, which were formed with an interval of two weeks. In that case, bitcoin will have a recovery and a further period of volume accumulation that were distributed by investors during Saturday's panic. Subsequently, bitcoin will enter the fifth wave of growth and update the ATH. Due to the deep correction, the market has recovered and lost speculative long positions, making further growth more stable and confident. Besides, the overheating in the futures and options markets has disappeared. Due to this fact, the growing demand will force the price increase.

I assume that the period of stabilization and the uptrend formation, which will be the basis of the final fifth wave of growth, will start soon. However, it will be possible to mention the bullish scenario after a successful fixation above $52,700 and a further bullish breakout of the descending resistance at $58,000. In case of a successful crossing these correction lines, bitcoin will resume upward movement with the potential to reach $85,000-$90,000

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