Applying the Confirmation Principle to Bitcoin
In four earlier analyses (HERE, HERE, HERE , and HERE ), I showed how the Principle of Confirmation works across U.S. stock indexes, bonds, crypto, and precious metals. In each case, the principle proved invaluable in filtering out false moves. The idea is simple but powerful: a breakout or breakdown that is not confirmed by a related index or asset is highly suspect and prone to failure.
Today’s case study takes us back to the world of crypto.
I consider Bitcoin the main asset, and Ethereum the second asset from which I seek confirmation.
The starting point is the primary bull market, signaled on 5/8/25. Following what appeared to be a normal secondary reaction against the bull market (brown rectangles in the charts below), there was a rally (blue rectangles) that completed the setup for a potential bear-market signal. However, many potential bear signals never materialize, as there is no confirmed breakdown of the secondary reaction lows (red lines).
The rally that started on 8/29/25 for Bitcoin and 9/25/25 for Ethereum brought Bitcoin to higher highs —above its 8/13/25 all-time highs —on 10/3 and 10/6/25 (horizontal green line), thus setting new all-time highs. Many jumped the bullish bandwagon.
However, Ethereum failed to confirm the higher highs, as it did not surpass its 8/22/25 highs.
Lack of confirmation was a yellow flag: The bull market was NOT reconfirmed. So, it was not the right time to add and buy more Bitcoin. The bull market was questioned with a big question mark.
After such an unconfirmed high, both Bitcoin and Ethereum fell precipitously and jointly pierced their respective 8/29/25 (Bitcoin) and 9/25/25 lows on 10/16/25 and 10/17/25, respectively, thereby signaling a new bearish trend. Please note that the breakdown was confirmed. So, no excuses not to declare a new bear market.
The chart below displays the whole drama:
So, Bitcoin’s breakup was a bull trap. Fortunately, ETHE’s refusal to confirm proved to be our shield.
Sincerely,
Manuel Blay
Editor of thedowtheory.com
