A blow-off top is a sharp and rapid increase in price followed by a steep and rapid decline. This pattern typically happens during an asset’s parabolic run.
What is the blow-off top?
A blow-off top is a sharp and rapid increase in price followed by a steep and rapid decline. This pattern typically happens during an asset’s parabolic run. A Bitcoin blow-off top is a sudden and drastic increase in bitcoin price, often followed by a sharp move lower on massive volume. This indicates that long traders are exiting the stock in droves. Blow-off tops are often exacerbated by wider market conditions, which means that a broad market sell-off could lead to a move lower. Bitcoin has seen several blow-off tops, the most recent being the 2021 and 2017 retracements. While most investors lost money during that time, some were able to cash out near the top and make a killing. So, how can you identify a blow-off top?
Identifying a blow-off top
Blow-off tops are often exacerbated by wider market conditions, which means that a broad market sell-off could lead to a move lower.
There are four key indicators you can use to help identify a potential blow-off top:
1) Limited pullbacks – During a parabolic run, there will be limited price declines as buyers continue to push the price higher. For example, during Bitcoin’s 2017 run, there were only two 5%+ corrections. By contrast, in 2021, there have already been four 5%+ corrections, with more likely on the way.
2) Massive price increases – Prices will increase rapidly during a blow-off top as FOMO (fear of missing out) takes over, and everyone rushes to buy. In December 2017, Bitcoin’s price increased by nearly $10,000 in just one week!
3) Bearish volume – As prices increase rapidly, you will typically see an increase in trading volume. However, you will see bearish volume diverge from price during a blow-off top. This means that as prices increase, trading volume will start to decrease. This is because savvy investors start taking profits near the top while new buyers enter the market and push prices even higher.
4) Broader market – You will typically see a blow-off top happen in just one asset as it decouples from the broader market. However, suppose you do see multiple purchases start to move higher at an accelerated pace. In that case, it could be indicative of something bigger happening, such as inflation or quantitative easing (printing money).
It won’t be the last blow-off top
Just because Bitcoin has had two significant blow-offs doesn’t mean it won’t have another one. We believe we are currently in the early stages of another potential Bitcoin blow-off top. Will it be as big as in 2017? We don’t know, but we do know that there is still tremendous upside potential for Bitcoin in the months and years ahead despite its recent runup in price.
The 2017 blow-off top As we mentioned earlier, Bitcoin experienced its first major blow-off top in late 2017 when prices went from $5,000 to nearly $20,000 in just two months! This was driven by FOMO as everyone rushed to buy Bitcoin without really understanding what it was or how it worked. The result was inevitable, and prices came crashing down shortly thereafter. Will history repeat itself?
The 2021 blown-off top have already some similarities between now and late 2017, including new all-time highs being set almost daily with social media chatter reaching new highs. Google search trends for “Bitcoin” spiking, Increased mainstream media coverage, Institutional money flowing into cryptocurrency and Retail investors buying crypto.
A bitcoin blow-off top is when prices sharply rise, followed by an equally sharp decline. This typically happens when an asset is experiencing a parabolic run and can be identified by limited pullbacks, massive price increases, bearish volume diverging from price, and decoupling from the broader market. While we have seen two major bitcoin blow-off tops already, I believe we are currently in the early stages of another one happening now in 2021. How do you feel about bitcoin blow-off tops? Do you think they are good or bad for Bitcoin? Let us know your thoughts in the comments below!