Bitcoin: The End Of The Throne (BTC-USD)

Like the dot-com bubble, the lure of quick riches has led to the cryptocurrency market coming far from reality. Since 2020, disinformation (driven by VC funds and social media influencers) has spread like wildfire across a global population of inexperienced investors. With massive retail and Fed support, Bitcoin (BTC-USD) and crypto companies became overrated.

As a result, cryptocurrency prices have plummeted capitulation throughout 2022. On June 18, Bitcoin broke below its previous cycle high of $ 20k / BTC. Although many investors are convinced that this decline represents the “final bottom”, we believe that there are significantly more disadvantages ahead. Actual:

• We believe this cryptocurrency marks the beginning of Bitcoin’s decline as a market leader.

This article describes the new perspective needed to succeed in investing in the changing crypto market.

Bitcoin: Unique death spiral

At the risk of saying “this time is different”, there are fundamental reasons why this cryptocurrency is unique. Primarily, this crash is similar to the dot-com bubble, as it represents the crushing of many deeply rooted perceptions in the crypto market.

Over the past decade, Bitcoin’s secular bull trend has jumped between several failed narratives:

• “Bitcoin is an inflation hedge.” X

• “Bitcoin can be used as security.” X

• “Millions will use Bitcoin as a value-for-money / peer-to-peer currency.” X

• “The price of Bitcoin never breaks its previous cycle high.” X

Although these narratives made sense in an expansive market after 2008, we believe they are losing their validity in a declining economy. When we look objectively, our opinion is that Bitcoin is the only one actual use case is to convince others to buy it.

The result of Bitcoin’s lack of use in the real world is that it puts one’s asset at risk death spiral when the music stops.

When BTC prices fall, Bitcoin investors collectively realize that their asset has no tangible price floor. A falling BTC price is increasingly encouraging investors to sell their holdings in an attempt to raise all available liquidity. Finally, this positive feedback loop leads to widespread panic and capitulation.

We believe that the price drop to Bitcoin’s spiral of death is happening right now. At the time of writing, $ 20k / BTC (the previous cycle height) is defended by the bulls. However, we believe that this support will not last, since $ 20k represents last chance for liquidity for hedge funds, venture capital firms and other financial institutions that want to sell before an ugly cryptocurrency collapses.

Bitcoin Bottom Prediction

In a recession, markets will reprise valuations given to financial assets during the previous expansion. We believe that this recurrence will drastically affect Bitcoin, as investors collectively realize that the asset has no tangible value.

As the above scenario unfolds, we expect Bitcoin to bottom below $ 10k around September – November 2022. This prediction is a ballpark estimate taken from Bitcoin’s price cycle theory.

As we said in our previous Bitcoin article,

“After each parabolic run-up, Bitcoin has declined from top to bottom by 80% about a year later.”

Consequently, $ 13,757 is exactly 80% below Bitcoin’s previous record high of $ 68,789. While we previously targeted this price as Bitcoin’s bottom, we now believe momentum may take BTC even lower below $ 10k. Unlike the two previous Bitcoin bear markets (in 2018 and 2014), this crash marks the first time Bitcoin has ever fallen below the high of the previous cycle. As such, we expect the crash to be deeper than the usual 80%.

We also Expect that Bitcoin will melt back to over $ 20k during the first half of 2023. As we can see in the chart below, we believe $ 20k will be a key level for Bitcoin over the coming year.

After Bitcoin finds bottom support, a subsequent meltdown may be driven by highly oversold conditions and looser monetary policy as inflation declines.

Important takeaways

• Bitcoin is experiencing a crash unlike any other. A paradigm shift is taking place, which eventually leads to Bitcoin relinquishing the throne.
• Instead of dying immediately (go straight to 0), we expect Bitcoin to loosely follow previous cycles and fall below $ 10k around September – November 2022.
• A violent bottom could further strengthen a reflective rally back to $ 20ki in 2023.

The brutal truth

In reality, Ethereum (ETH-USD) best meets the narratives that the masses of Bitcoiners want. While Bitcoin is an old and limited technology, Ethereum exists uniquely as a decentralized application network, a value repository and a widely used form of money.

A simple mental model for comparing Bitcoin vs Ethereum is as follows:

• While Bitcoin is invention of decentralized digital money.
• Ethereum is the first ever application of decentralized digital money.

In the future, when the crypto market dies and grows again to support protocols with positive organic cash flow, Ethereum will be the market’s most dominant player. In fact, we believe that Ethereum’s unbeatable decentralization and subsequent networking effects will drive growth to become a primary settlement for the entire Internet!

As we said in an article from September 2021:

“Ethereum will continuously absorb values ​​from all institutions that prioritize power over efficiency.”

Ethereum’s application efficiency and unique structure as a triple point resource give it one competitive advantage against brick-and-mortar companies. As Ethereum’s software stack continues to improve, applications built on Ethereum will do so easy out and advantage from any inefficiencies within older technology networks. DeFi, for example, is already doing this by eliminating the need for financial intermediaries.

• We believe DeFi will redefine traditional finance and develop into a trillion-dollar industry. However, we are very early in this journey. As such, the current state of decentralized finance still has many problems (especially lack of regulation or “rules”).

In a long enough time frame, it is likely that decentralized, autonomous and efficient software applications built on Ethereum will take over all industries. The logic of this conclusion stems from Ethereum’s open network dependence on the free market. Since the market always seeks maximum profits, it makes sense that the next era of business will involve the most decentralized and distrustful technology networks, thus maximizing the profitability of all parties. To read more context about this task, see here.

• Ethereum applications maximize profits for everyone by replacing bureaucracy with automation.

Simply put, we believe that Ethereum – a decentralized, autonomous, ever-expanding and widely trusted transactional network – will eventually develop more efficient applications than most physical companies.

Since the masses are still unaware of Ethereum’s long-term growth potential, we expect Ethereum to crash with all other cryptocurrencies towards the end of 2022. However, after sufficient cooling time, we believe that ETH will finally come out of the ashes to start a new long-term bull trend, reaching $ 10k / ETH in 2025.

Summary

After the crash in 2022 and the subsequent bear market, we expect Ethereum to emerge as the crypto market’s biggest winner. We will elaborate on this task further with upcoming Ethereum / altcoin articles. Although most altcoins are bad investments, some work to create real income. We plan to identify and take advantage of these opportunities during the 2020-2030 decade-long transition from industrial to the information age.