Is Bitcoin Price Bottoming Out? – Bitcoin Magazine
Below is an excerpt from a recent issue of Bitcoin Magazine Pro, Bitcoin Magazine premium market’s newsletter. To be among the first to receive this insight and other market analysis on the bitcoin chain straight to your inbox, Subscribe now.
Maximum Pain: Still Ahead
Today’s word is pain. It was Federal Reserve Chairman Jerome Powell’s favorite at the Federal Open Market Committee meeting in September. A simple financial release and subsequent press conference sent the market into a period of mild panic with prices rising higher, volatility heating up and stocks being sold off with the bitcoin that followed. The S&P 500 lost critical support at 3,850, bitcoin was sent back to local lows of $18,100 and the 2-year Treasury climbed over 4.1%.
Even an expected 75 basis point increase was not enough to turn markets around as the complementary information across the Fed’s forecasts and Powell’s speech gave risk assets more to worry about. Powell repeated many times that more economic pain (job losses, housing market crashes, etc.) comes as a result of solving the inflation problem. He cited a lack of disinflation in their favorite “core PCE” (personal consumption expenditure) measure and repeated his Jackson Hole hawkish speech, noting that they won’t stop until the job is done.
It is now do or die for risk assets with the possibilities of seeing an immediate relief rally this week or likely more downward continuation in valuations and prices across the board.
Our thesis here at Bitcoin Magazine Pro, as long-term bull-biased bitcoin followers, is that the macroeconomic headwind is in the driver’s seat, and given the price action in global currency and bond markets, the ultimate moment of panic has yet to arrive. We are open and flexible to change that attitude, but as objective market analysts we see and report what lies ahead. More on this later.
On-Chain
Although on-chain cyclical metrics can prove useful in assessing long-term value buying (or selling) opportunities and Bitcoin’s economic behavior, we have emphasized them less in recent months as we felt they were less relevant to short-term price . action compared to current macro headwinds.
Looking at the history of bitcoin market cycles, when diving into chain data, one immediately notices the consistency where the bitcoin price falls below the realized price (average cost basis of all bitcoins according to their last movement in the chain) during the depth of a bear market. In previous cycles, it has not been a one-time event, but rather one that also comes with duration. We have emphasized for several months that this bear market may last longer than most expect, and that the duration component is more painful than a percentage drawdown.
“As the average owner is underwater, most marginal sellers have already sold their holdings, and while further downside is possible, the ‘pain’ felt by market participants is in the form of a longer period spent underwater rather than rapidly falling prices that characterized the start of the bear market.” – When does the bear market end? 11 July 2022
The daily BTC/USD exchange rate is set entirely on the margin, and given the growing macroeconomic headwinds, marginal sellers have and will likely continue to dominate marginal buyers until a clear change in liquidity conditions occurs.
A more zoomed-out view shows that this extended process of capitulation transfers the coins to stronger and more well-capitalized hands.
Bitcoin price weighted by realized price shows we are in bear territory but still has room below.
For those who see this as the time to get long-term undervalued bitcoin, the realized market cap is a safe chart that shows the log growth of bitcoin’s cost basis over time. The cost base has only fallen a maximum of 24.07% from cycle highs and is currently down 12.71%. This is the chart that we believe most “non-bitcoin” investors don’t understand. Even in the “all speculative” bubble, of which bitcoin is a part, the cost base of the network is constantly increasing or decreasing marginally despite the wild daily exchange rate volatility.
Today, the cost basis is only down 12.71%.
