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  • Two previous early bull market parabolic rallies saw retracement of 62% and 81%.
  • China-driven rally could see a “violent” correction to $6,800 and even as low as $5,600.

“We now indeed believe that these are the early innings of a new bull market,” says Adamant capital in the latest medium post.

However, we saw the monster rally that took BTC price from $5,300 to $9,100 in just a month which means for this bull market to continue, we need a violent correction and then Bitcoin trading in a range to continue on its parabolic rise.

Parabolic Curve Won’t Break for Another Month or Longer

After releasing the report “Bitcoin in heavy Accumulation” in April, the company now took to Medium to talk about the price rally we saw in the month of May. Tuur Demeester of Adamant Capital shares how they stated that a break above $6,500 would mark the start of a new bull market in its report.

Last month we did just that when BTC breached $6,500 level on May 11th only to surge to $9,100 level at the end of last month.

Demeester, the author of the post says there is a possibility that the parabolic curve of the world’s largest cryptocurrency won’t break for another month or longer and a sustained short term continuation of the parabola also seems unlikely.

This means a drop is coming but what exactly drove the prices higher in the first place? Demeester gives a number of reasons for the same including accumulation by institutions and family officers, a significant short squeeze, non-selling by bitcoin miners as profit margins recover, investors exiting embattled exchanges via Bitcoin withdrawals, and minor FOMO from retail investors.

China is the Underestimated Factor in Driving BTC Price

Apart from the miners, retailers, and institutions, there is one other factor that played a role in this and that’s China. As a result of the US-China trade war on may 5th, the Chinese Yuan weakened against the US dollar and that week aslo saw BTC broke above the resistance of $6,500.

“There’s a significant chance that in fact it was Chinese investors who pushed bitcoin in bull market territory this year.”

Historically, capital controls, inflation, and capital flight have proved to be significant medium-term drivers of Bitcoin price, explains Demeester while providing the examples like 2013 Cyprus banking crisis and yuan weakened by 10% in 2015-16 among others.

Is the Price has Gotten Ahead of itself?

Fueled by China-driven demand, the price has actually gotten ahead of itself as Demeester says when the market moves from capitulation to massive profits in just a sixth month period, it’s time to process that “psychological shock.”

The post points out the 62% and 81% retracements we saw in two previous early bull market parabolic rallies. By this standard, we could see a 70% retracement that could take us to $5,580 however, there is a challenge of Bitcoin keeps on maturing that changes price volatility significantly.

“What we found is remarkable: bitcoin’s current parabolic curve represents the fastest increase in unrealized profits since January 2012.”

The current rally, Demeester says resembles only one parabolic rally that is of summer 2012 when the price went from $5 in early June to $16 in mid-August.

“Should $9,000 prove the top (which is not a given) and if then we’d see a 2012-style correction repeated, we would expect after an initial crash to see bitcoin trade in a range between $6,800 and $7,680 (27–44% retrace of the rally).”

An honorary mention was over to the rally of August to November 2015 where 56% upward move coincides with private capital flight from China. This rally produced a 70% retrace that in current rally means a drop to $5,600 and then a swift, two-month recovery back to the parabola high.

The views and opinions expressed in the article Bitcoin is in the “Early Innings of a Bull Market”, but a “Violent Correction” is Necessary for BTC/USD do not reflect that of 48coins, nor of its originally published source. Article does not constitute financial advice. Kindly proceed with caution and always do your own research.

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