Not all Bitcoin doubts are material
Has bitcoin hit rock bottom? It is plausible, but the majority of observers seem to think not. In favor of the argument that a bottom has been found, there are elements of technical and chain analysis that, viewed from a certain angle, can support this position.
Look at the weekly candles and you can see what could be a double bottom, indicating a trend reversal. Proponents of the bullish hint point to an indicator called the Hash Ribbon, which suggests that the miner capitulation is over (a positive sign), and there is the MVRV Z-score, which has bitcoin now marked as significantly undervalued.
According to these perspectives, a bottom may, under normal circumstances, have already been ground out, and it would not be a bad time to accumulate. But then we are not in normal circumstances, and therefore analyzes both technical and on the chain are carried out in a new context. Given the precarious economic environment, it is reasonable to anticipate erratic price behavior that deviates from past patterns.
In fact, we’ve already seen evidence of this, as bitcoin crashed to its current cycle low of around $17,700 back in June. This was a departure from normal behavior in that it dipped lower than the previous cycle’s high (just below $20,000 in December 2017), while in all previous cycles bitcoin’s low had stayed above the previous cycle’s high.
And so we find ourselves in what may be uncharted territory and seriously consider the possibility that anything could happen this time. Those unfamiliar with bitcoin and its cycles may assume that such unpredictability has always been present, since bitcoin has a reputation for volatility, but volatility and unpredictability are not the same, and a lot depends on your time preference.
Bitcoin volatility has actually occurred within larger, cyclical, identifiable patterns, and zoomed out, it is the long-term predictable trends that have established bitcoin’s status as the number is increasing technology.
Gloom is still in the air
A gloomy (or at least short-sighted) mood has become markedly present around bitcoin predictions, reflecting a broader sense of nervousness in the markets.
Perhaps the nervousness is due to a perception (whether real or imagined) that established patterns may no longer be reliable, coupled with what feels like once-in-a-generation political and economic events surrounding energy supply breakdowns and global deleveraging.
There are also bitcoin-specific stories circulating the crypto space, some of which raise valid concerns and some of which may be exaggerated.
One subplot revolves around Mt Gox, which has recovered some of the bitcoin it lost in a hack in 2014 and will soon return the lost funds to its former users, leading to speculation that this will negatively affect bitcoin’s price.
While it is true that Mt Gox is set to unload a significant batch of once-lost coins, it seems unlikely that this one will unexpectedly be able to crash the market. The coins will not be released at the same time, and furthermore, it is unlikely that everyone who receives a refund will immediately sell everything they receive.
Then there are stories about MicroStrategy and Michael Saylor, around whom crypto-talk is constantly (although to be fair, the talk is often driven by Saylor himself, who does not hesitate to voice his bitcoin maxi-oriented perspective).
The news here is that Saylor and MicroStrategy are being sued by the District of Columbia attorney general for tax fraud, a charge they deny. The resulting speculation is that this could lead to MicroStrategy liquidating part of its significant bitcoin holdings, thereby creating outsized selling pressure. However, this possibility remains entirely in the realm of fanciful theorizing, with too many unknown variables to be a solid concern.
Influential factors converge
Of demonstrable concrete importance to bitcoin’s price is the relative strength of the US dollar, which has risen and looks set to continue along that trend while the Federal Reserve remains committed to fighting inflation. The inverse correlation between risky asset prices and the strength of the dollar is clear and present, so this is a headwind for bitcoin.
This leads to another important detail, which is that bitcoin is currently, for most investors, closely aligned with technology stocks and risk assets. This may well change in the future as understanding grows that bitcoin is a unique proposition, but currently mainstream perceptions are not at that stage.
And then there is the increasingly palpable atmosphere of generalized bear market fear that is most intense around cryptocurrencies.
But here we can actually see the reassuring cyclical patterns confirming themselves, as at this stage in the bitcoin and crypto cycle we should expect the dominant sentiments to be fear and doubt.
In certain respects, the current situation may not be so unique after all. Ultimately, as always, the only critical factor in sending prices higher is how much money is flowing into the crypto markets. And while at this moment it may be difficult to see where a potential influx will come from, one future change that is as close to certain as you can get is that new catalysts will emerge.
Has bitcoin hit rock bottom? It is plausible, but the majority of observers seem to think not. In favor of the argument that a bottom has been found, there are elements of technical and chain analysis that, viewed from a certain angle, can support this position.
Look at the weekly candles and you can see what could be a double bottom, indicating a trend reversal. Proponents of the bullish hint point to an indicator called the Hash Ribbon, which suggests that the miner capitulation is over (a positive sign), and there is the MVRV Z-score, which has bitcoin now marked as significantly undervalued.
According to these perspectives, a bottom may, under normal circumstances, have already been ground out, and it would not be a bad time to accumulate. But then we are not in normal circumstances, and therefore analyzes both technical and on the chain are carried out in a new context. Given the precarious economic environment, it is reasonable to anticipate erratic price behavior that deviates from past patterns.
In fact, we’ve already seen evidence of this, as bitcoin crashed to its current cycle low of around $17,700 back in June. This was a departure from normal behavior in that it dipped lower than the previous cycle’s high (just below $20,000 in December 2017), while in all previous cycles bitcoin’s low had stayed above the previous cycle’s high.
And so we find ourselves in what may be uncharted territory and seriously consider the possibility that anything could happen this time. Those unfamiliar with bitcoin and its cycles may assume that such unpredictability has always been present, since bitcoin has a reputation for volatility, but volatility and unpredictability are not the same, and a lot depends on your time preference.
Bitcoin volatility has actually occurred within larger, cyclical, identifiable patterns, and zoomed out, it is the long-term predictable trends that have established bitcoin’s status as the number is increasing technology.
Gloom is still in the air
A gloomy (or at least short-sighted) mood has become markedly present around bitcoin predictions, reflecting a broader sense of nervousness in the markets.
Perhaps the nervousness is due to a perception (whether real or imagined) that established patterns may no longer be reliable, coupled with what feels like once-in-a-generation political and economic events surrounding energy supply breakdowns and global deleveraging.
There are also bitcoin-specific stories circulating the crypto space, some of which raise valid concerns and some of which may be exaggerated.
One subplot revolves around Mt Gox, which has recovered some of the bitcoin it lost in a hack in 2014 and will soon return the lost funds to its former users, leading to speculation that this will negatively affect bitcoin’s price.
While it is true that Mt Gox is set to unload a significant batch of once-lost coins, it seems unlikely that this one will unexpectedly be able to crash the market. The coins will not be released at the same time, and furthermore, it is unlikely that everyone who receives a refund will immediately sell everything they receive.
Then there are stories about MicroStrategy and Michael Saylor, around whom crypto-talk is constantly (although to be fair, the talk is often driven by Saylor himself, who does not hesitate to voice his bitcoin maxi-oriented perspective).
The news here is that Saylor and MicroStrategy are being sued by the District of Columbia attorney general for tax fraud, a charge they deny. The resulting speculation is that this could lead to MicroStrategy liquidating part of its significant bitcoin holdings, thereby creating outsized selling pressure. However, this possibility remains entirely in the realm of fanciful theorizing, with too many unknown variables to be a solid concern.
Influential factors converge
Of demonstrable concrete importance to bitcoin’s price is the relative strength of the US dollar, which has increased and looks set to continue along that trend while the Federal Reserve remains committed to fighting inflation. The inverse correlation between risky asset prices and the strength of the dollar is clear and present, so this is a headwind for bitcoin.
This leads to another important detail, which is that bitcoin is currently, for most investors, closely aligned with technology stocks and risk assets. This may well change in the future as understanding grows that bitcoin is a unique proposition, but currently mainstream perceptions are not at that stage.
And then there is the increasingly palpable atmosphere of generalized bear market fear that is most intense around cryptocurrencies.
But here we can actually see the reassuring cyclical patterns confirming themselves, as at this stage in the bitcoin and crypto cycle we should expect the dominant sentiments to be fear and doubt.
In certain respects, the current situation may not be so unique after all. Ultimately, as always, the only critical factor in sending prices higher is how much money is flowing into the crypto markets. And while at this moment it may be difficult to see where a potential influx will come from, one future change that is as close to certain as you can get is that new catalysts will emerge.
