Halfwood Summer's Two-Year Forecast: Bitcoin Entering Early Bear Market, US Stock Market Rally Far from Over

Original Article Title: "Logic Behind the Next Two Years' Predictions"

Original Article Author: Ban Muxia, Renowned Trader

Rhythmic Note: "Ban Muxia" is a self-proclaimed "self-made" trader in the Chinese cryptocurrency trading circle. He is widely known for his experience of self-proclaimed "comeback": starting with frequent liquidations, then adjusting his strategy, focusing on low leverage, technical analysis, and risk control, and finally achieving a considerable profit. It is rumored that his assets exceeded 50 million yuan in 2021. On November 11, Ban Muxia published a long article outlining his views on the future trends of Bitcoin, US stocks, and gold over the next two years. The following is the original content:

Introduction

Those who have read my 23-year Weibo mid-term strategy sharing should remember that my market prediction framework is "Cycle + Liquidity (Expectation) + Technical Form." Later, after adding wave theory to the technical analysis aspect, the issue at the cyclical level became even clearer. After more than a year of running-in, now by combining wave theory with the previous analysis framework for predictions, in the trading log I keep, the accuracy rate can exceed 60%. Therefore, this time, I would like to share with everyone the market prediction for the next two years formed by this analysis framework.

​​​​1. Cycle

Bitcoin has ended the traditional four-year cycle and entered the early bear market. The recent explosive rallies of many old-school altcoins have also confirmed this point. At the end of each Bitcoin bull market cycle, old-school altcoins will experience a super rally. However, this bear market cycle is likely to be significantly shortened due to the arrival of the AI bubble in the US stock market.

Gold is in a major cycle of the transition between old and new monetary systems. During this transitional period, gold will continue to rise. So, after this round of correction in gold ends, it can be held for the long term for 10 years.

The cycle of the US stock market is basically tied to the US debt cycle. Combining the views of many economic experts, the US debt cycle is in its later stages but has not yet ended because some key overheating indicators have not appeared, although there are already some signs of overheating.

Will the AI transformation this time inevitably create a bubble? Almost certainly, because every major technological transformation causes participants to fear missing out on opportunities, leading to excessive capital expenditures, even massive borrowing, and storytelling.

All of the above forms a very bullish foundation for the next two years.

2. Liquidity (Expectation)

Regarding liquidity, only look at the liquidity situation in the United States. Recently, due to government shutdowns and continued balance sheet reduction, the liquidity situation in the United States is very tight, with the SOFR-RRP spread reaching levels seen during the COVID-19 period. This may also be part of the reason for the recent declines in the US stock market and Bitcoin. Therefore, the near-term outlook for the US stock and Bitcoin markets is not favorable.

However, the recent U.S. government shutdown is about to end, which will improve the recent liquidity crunch. In anticipation of this, the market has experienced a rapid rebound. But this improvement is only a temporary relief and does not constitute the conditions for a continued bull market.

Starting in December, the Fed will stop its balance sheet reduction, and it is very likely to resume expansion. At this point, the liquidity environment for U.S. stocks and Bitcoin will continue to improve significantly. However, this is just a return to normal liquidity, similar to October 2019. The real massive liquidity injection may have to wait until May next year after Trump takes control of the Fed, similar to March 2020.

The above factors contribute to the expectation of short-term market volatility, mid-term moderate market gains, and long-term significant market growth.

3. Technical Analysis

Bitcoin:

Bitcoin is currently in a large-scale Wave 4 correction (the mainstream view is that this Wave 1 should be counted from the inception of Bitcoin, but here I take the low point of March 12, 2020, as the starting point of Wave 1, as it does not affect the subsequent analysis). Generally, Wave 4 corrections are sideways, especially when Wave 2 corrections are steep. This is why Bitcoin is expected to undergo a sideways correction in the coming months. Considering the cycle and liquidity analysis, it also does not support a significant drop in Bitcoin price.

For the low point of this bear market cycle and the high point of the next bull market cycle, please refer to the Weibo post from November 3rd.

Gold:

As shown in the chart, gold is in a correction phase of a 10-year bull market. Corrections at this level are unlikely to be completed within two to three weeks. However, because gold is in a major cycle of transition from old to new currency systems and is supported by continuous purchases by central banks of emerging countries, the magnitude of this correction is not expected to be significant.

Therefore, the 0.382 retracement level at 3100 can be considered an extreme target. It is more likely that the correction will find support between 3350 and 3750. If you are worried about missing out on the next 10-year gold rally, you can buy below 3750.

U.S. Stocks:

The uncertainty of a U.S. stock market correction is the highest. However, as the uptrend cycle is far from over, any correction is seen as a buying opportunity.

Will the AI bubble come, and will it burst for sure? This may be the fate of every technological revolution at its beginning. Companies that heavily borrow and engage in high-leverage mergers and acquisitions due to the fear of missing out on opportunities may experience low capital returns in the early stages of a technological revolution when the market is not yet mature. Once this becomes evident, cracks in the story may begin to appear. If the Fed tightens monetary policy due to excessive liquidity leading to higher inflation, the bubble will burst.

There are several key indicators that can serve as a basis for predicting the peak of a future bubble:

1. The emergence of mega-price mergers and acquisitions.

2. Rising inflation, with a significant expectation of the Federal Reserve tightening monetary policy.

3. Any stock related to AI experiencing a massive surge, with valuation becoming extremely exaggerated.

Of course, the goal is not to sell immediately when these events occur, but to start being cautious, enjoying the bubble while also preparing an exit strategy.

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