Of Whales and Wyckoff
The eye of the storm has passed. The much-publicised “death cross” played out on Saturday 19 June as the 50-day moving average (MA) creeped below the 200-day MA, signalling a loss of bullish momentum. Having enjoyed a lot of attention in recent weeks, the actual crossing of the indicator left many wondering if the bearish sentiment it signalled was already priced in.
Traders didn’t have to wait long for an answer, as Monday brought with it an 11% drop for BTC, precluding a further fall to $28.7k on Tuesday. However, in a dramatic show of strength, the coin has since rallied to the precipice of $35k.
So, what to make of this madness?
The Wyckoff perspective
In the wake of May’s crash, The Wyckoff Method emerged as a popular method of analysis for BTC’s price action, after a months-old video predicting the retracement went viral.
The framework was developed by Richard D. Wyckoff in the late 19th Century. Having grown tired of controlling interests, termed Operators, manipulating markets in order to “fleece the public”, Wyckoff set out to analyze how top traders used their influence to move markets in order to extract maximum profit from retail investors (isn’t it funny how the same narrative is central to the crypto space today?)
Wyckoff’s schematic can be split into four phases, as illustrated above. Initially, large investors accumulate during a downtrend, a period marked by sideways movement within a trading range (TR). Once they’ve amassed sufficient holdings, Operators drive the price higher, instigating an uptrend as retail investors become increasingly optimistic, with demand outstripping supply. Once prices have risen to a point where Operators are ready to offload their holdings, the cycle enters a distribution phase. Within this trading range, large holders take advantage of uncertainty to slowly sell their assets at a premium, before finally driving prices down once most holdings have been sold. Following this sell-off, Operators once again begin to accumulate at low prices.
It’s interesting to note that the resurgence of Wyckoff in 2021 coincides with the entrance of institutional players to the crypto market. Google search volume for the term has skyrocketed in recent months, after years of relative obscurity in the world of technical analysis.
Google Trends
Like any technical analysis, Wyckoff leaves ample room for interpretation. In the current market landscape, debates have been raging on as traders try to discern the nature of our current range. Bulls argue that Tuesday’s lows may mark the “Spring” of an accumulation phase, suggesting a resumption of early 2021’s rampant run. More wary voices, however, have warned that the recovery of recent days may be a retest of the upper trading range, suggesting BTC may be following a distribution pattern before a large sell-off.
Scenario A - Accumulation
Scenario B - Distribution
A note on technical analysis
Theories like Wyckoff afford us better insights into less-obvious drivers of market conditions, but often provide little in the way of definitive direction. As timelines are flooded with conflicting interpretations of current conditions, It’s clear that this week has been fraught with uncertainty. In fact, the most succinct summation of current market sentiment could arguably be found in this piece of modern art:
The lesser known bear-bull
New on VALR
The markets may be busy, but our team has been busier. We’re proud to announce the successful launch of VALR Pay, allowing you to send ZAR from your wallet to anyone with just their phone number, email, or VALR Pay ID. Fast, seamless, free — about as complicated as transferring funds should be. To get started with VALR Pay and vie for a share of our dedicated rewards pool or R1,000,000 - simply visit our site and explore our new features.