半木夏's Two-Year Future Forecast: Bitcoin Entering Early Bear Market, U.S. Stock Market Bull Run Far from Over

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

Original Article Author: Ban Mu Xia, Renowned Trader

Introduction

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

1. Cycle

Bitcoin has ended the traditional 4-year cycle and entered the early bear market. The recent explosive rallies of many old-school altcoins have also confirmed this. At the end of each Bitcoin bull market cycle, old-school altcoins will experience a super pump. However, this bear market cycle is likely to be significantly shortened due to the arrival of the U.S. stock market AI bubble.

Gold is in a large cycle of the transition between old and new currency systems. During this transition period, as long as it has not ended, gold will continue to rise. Therefore, after this round of gold retracement ends, you can continue to hold it for the long term for 10 years.

The cycle of the U.S. stock market is basically the U.S. debt cycle. According to the opinions of multiple economic experts, the U.S. debt cycle is in its later stages but has not yet ended because some overheating indicators have not appeared. At the same time, there are already some signs of overheating.

Will this AI revolution inevitably create a bubble? Almost certainly, because every major technological change causes participants to fear missing out, leading to excessive capital expenditure and even heavy borrowing, and the beginning of storytelling.

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

2. Liquidity (Expectation)

In terms of liquidity, only the liquidity situation in the United States is considered. Recently, due to the government shutdown and ongoing tapering, the liquidity situation in the United States has been very tight, with the SOFR-RRP spread reaching levels seen during the COVID pandemic. This may also be part of the reason for the recent decline in the U.S. stock market and Bitcoin. Therefore, the near-term outlook for the U.S. stock market and Bitcoin is not optimistic.

However, the recent end of the U.S. government shutdown will improve the recent liquidity tightness. With this expectation, the market has experienced a rapid rebound. However, this improvement alone does not constitute the conditions for a continued bull market.

Starting December, the Federal Reserve will stop its balance sheet reduction and is very likely to restart expansion, at which point the liquidity environment for the US stock market and Bitcoin will continue to improve significantly. However, this is just a return to normal liquidity, similar to October 2019. The real large-scale liquidity injection may have to wait until May next year after Trump takes control of the Fed, similar to March 2020.

The above constitutes the basis for a recent view of market volatility in the short term, a slight upward trend in the medium term, and a significant increase in the long term.

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 because this does not affect the subsequent analysis, so there is no change.), generally, Wave 4 will be a sideways correction, especially when Wave 2 was a steep correction. This is why Bitcoin is expected to undergo a sideways correction in the coming months, and the analysis of cycles and liquidity does not support a sharp decline in Bitcoin.

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

Gold:

As seen in the chart, gold is in a retracement phase of a 10-year bull market, and this level of retracement is unlikely to be completed within two to three weeks. However, because gold is in a large cycle of transition between old and new currency systems, with continued purchases by central banks of emerging countries as support, the extent of the retracement in this gold cycle will not be too large.

Therefore, the 0.382 retracement level at 3100 can be considered as a target price under extreme conditions. The more likely scenario is to find the end of the retracement between 3350 and 3750. If you are afraid of missing out on the next 10-year uptrend in gold, you can buy directly below 3750.

US Stock Market:

The uncertainty of the US stock market's retracement is the highest, but as the upward cycle is far from over, any pullback is a buying opportunity.

AI bubbles are bound to occur, but will they inevitably burst? This may be the fate of the early stages of every technological revolution. Companies that heavily borrow and leverage in M&A at the beginning of a technological revolution, fearing to miss out, may face low capital returns when the market is still immature. Once this becomes evident, cracks in the story may surface. If at this point, the Federal Reserve tightens monetary policy due to excessive liquidity leading to rising inflation, the bubble will burst.

There are several observable indicators that can serve as a basis for anticipating the top of a future bubble period: 1. Mega-priced acquisitions emerge. 2. Inflation rises, and the expectation of the Federal Reserve tightening monetary policy becomes significant. 3. Any AI-related stocks only surge, with valuations being extremely exaggerated.

Of course, it's not about selling immediately when these events occur, but rather being alert, enjoying the bubble while also preparing an exit strategy.

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