Source: TheIndipendent.com
Bitcoin: Looking Beyond The Current Bear Market
Bitcoin’s (BTC-USD) bear market has been raging for more than 6 months now. Since the hyper-volatile digital asset topped out at almost $20K late last year, significant carnage has occurred in digital asset arena. Bitcoin alone has shed well over $200 billion in market value since the declines began, but the entire crypto currency complex has cratered by an astonishing $550 billion since its top was reached early in the year.
Bitcoin Price
Source: CoinMarketCap.com
Bitcoin Market Cap
Cryptocurrency Complex Market Cap
An apparent loss in popularity, subdued hype, and the subsequent decline in demand have caused Bitcoin to drift aimlessly, and mostly lower in recent weeks. Very recently Bitcoin even flirted with new lows, around the upper $5K range. But, with 70% of the air now deflated from the “Bitcoin Bubble” (top of almost $20K), could now be a good time to start building a position in Bitcoin? After all, bear markets don’t last forever, and the next bull stampede will likely propel Bitcoin significantly higher than the prior peak around the $20,000 level.
So, Why the Declines in the First Place?
Let’s face it, Bitcoin got massively overhyped and overbought going into the end of last year. Bitcoin was on the local news, Bitcoin was saving the world, it was basically Bitcoin madness everywhere. Naturally, an inordinate number of people went out and bought Bitcoin for the wrong reasons.
Bitcoin essentially became primarily a flipping instrument of choice for numerous people, reminiscent of the wild real estate days in the mid-2000s. Many people weren’t buying Bitcoin as a long-term investment, weren’t utilizing it as a store of value, and were not accumulating it for its transactional prospects, but were simply buying it so they could unload it to someone else for more money. Unfortunately, this is exactly how bubbles are formed.
Bitcoin skyrocketed by about 100-fold, nearly 10,000% in its last bull market stampede, from a low of about $200 in late 2015, to a high of almost $20K in late 2017. These are incredible returns by any measures. In fact, incredible is an understatement, unsustainable seems to be a much better characterization. However, this does not mean that Bitcoin won’t go much higher in its next bull market. In fact, most trend related and technical evidence seems to point towards that it can and likely will do just that.
Bitcoin’s Bull and Bear Markets
This is not the first or last bear market that Bitcoin will endure. In fact, the current correction and consolidation process appears to be a normal, healthy, and productive procedure. Nothing can go up in a straight line, and throughout Bitcoin’s history when the price takes on a parabolic trajectory it often signals that a bear market is right around the corner.
Bitcoin has had several booms and busts throughout its history, and this current decline is no exception. From late 2011 to early 2013, Bitcoin skyrocketed by roughly 10,000%, from $2 to approximately $200 in just about 18 months (essentially identical percentage move as the latest bull market). This meteoric rise gave way to Bitcoin’s first major (significantly traded) bear market that brought the digital asset down by about 75% to roughly $50.
Source: BitcoinCharts.com
After a relatively subdued period of trading where the price ranged between $50 and $100 (bear market), Bitcoin took off again. This time the relatively brief bull market caused Bitcoin’s price to surge by about 2,000%, from a low of $50 to roughly $1,000 in around 6 months.
This gave way to a prolonged bear market that took over 1 year to hit bottom and brought the price down by about 80% from $1,000 to just $200. This was followed by the latest, monstrous 10,000% bull stampede that propelled Bitcoin’s price from $200 all the way up to $20K.
So, What Happens Now?
It seems clear, that this is a badly needed bear market, as the enormous gains reached in the latest bull run were simply unsustainable. Also, this bear market is likely to continue for longer, and could ultimately bring Bitcoin’s price down by a similar percentage margin as prior declines (75-80%). Technically, we are likely quite close to a bottom, as about 70% has already been sucked out of Bitcoin’s price. But the next and final stop could be a bottom at around $4-5K, approximately 75-80% below the “$20K Top” in Bitcoin.
When Will this Bear Market End and How High Will the Next Bull Market Go?
It’s impossible to say exactly, but prior declines have lasted from several months to almost 2 years. Given the prior bear market’s prolonged decline and subsequent extraordinary ascend, the next bull run could be shallower. By shallower I mean a possible ascend of about 1,000-2,000% from the lows, as opposed to the 10,000% gains Bitcoin has achieved in prior bull charges.
However, this also implies the bear market may not be as prolonged as some fear. Bitcoin could bottom out between $4-5K, and this bear market may end some time in the second half of this year. So, if we apply the 1,000-2,000% figure to the next bull market from the $4-5K lows, it suggests Bitcoin’s next bull market will likely enable the price to peak between $40-100K.
If we observe prior peaks in Bitcoin’s bull markets, we see that the trend is for the next top to be 5-20 times higher than the previous one. We see this in the first major peak of $5-$200, then we see it from the $200 peak to $1,000, and then from the $1,000 to $20,000, so what’s next?
This trend implies a top of at least $100K for Bitcoin during the next bull market run. The 5X increase is also consistent with a prior relatively short bull market in 2013 that saw the price increase from about $200 to $1,000, roughly 400% from peak to peak. Therefore, it is likelier that Bitcoin’s next bull market tops out closer to $100,000, than $40 or $50K.
Why Bitcoin is Not Going Away
Bitcoin, and other “systemically important” digital currencies are not going away for the simple reason that there is and will continue to be demand for them. This demand is not likely to go away, and should increase significantly with time. Bitcoin and other important coins represent better, cheaper, and more efficient alternatives to the current status quo fiat monetary system. Possibly most importantly, these assets are designed so that they cannot be over-printed, controlled, or manipulated, by an exploitative third party system (primarily commercial banks, central banks, governments). Therefore, expecting Bitcoin and other critically important digital coins to go away or lose popularity permanently does not seem pragmatic or likely.
Why Bitcoin Can Have Plenty More Bull Markets
Bitcoin’s market cap has collapsed to around $100 billion in recent months/weeks. When you put this in context to the worth of the store of value, and the medium of exchange markets that are comprised of roughly $3.5 trillion in investible gold, and about $90.5 trillion in M3 money supply, Bitcoin’s value is miniscule. In fact, Bitcoin represents slightly more than just 0.1%, or one tenth of 1% of the value these markets represent. This is despite the clear ability and potential for digital assets to effectively compete in these markets in the future.
Source: MarketWatch.com
At just 1% of the world’s medium of exchange and store of value markets, Bitcoin will be worth approximately $940 billion and will command a price of about $55,000 per coin. If the value eventually moves up to just 5% of the market, Bitcoin’s market cap would be worth around $4.7 trillion and each coin would be valued at around $275K.
I am not saying Bitcoin will be worth this much any time soon, but it could be in about 5-10 years. Perhaps more importantly, this illustration should provide an idea of the enormous potential Bitcoin has. Essentially, all it needs is for enough people to want to own it and to start using it, and popularity coupled with demand will drive prices much higher.
Another element to consider, is that Bitcoin, and digital assets in general are a relatively recent phenomenon. But it’s already clear that they have enormous potential to change and shape the future of commerce, exchange, banking, finance, and store of value. In addition, the technology and adoption of digital assets is still in its infancy and has enormous room for improvement and subsequent growth. Therefore, this game is just getting started and there will be plenty more bear and bull markets ahead, but ultimately with much higher prices for Bitcoin in dollar terms.
The Bottom Line
Bitcoin is currently going through a bear market, similar to prior declines throughout the digital asset’s history. However, what makes the current bear market slightly different is that this time it’s in the public’s eye, as Bitcoin became significantly more popular and powerful during its most recent ascend. But this does not mean that Bitcoin is dead. In fact, it is very likely that Bitcoin will survive, improve, persevere, and return to making new highs in its next bull market. Judging by prior Bitcoin bear and bull market trends, the current decline is close to concluding, as Bitcoin has already shed about 70% of its value from the top. Prior bear markets have caused losses of 75-80%, and there is no reason to believe this time will be any different.
This suggests the ultimate bottom in this bear market will likely come between $4-5K, and this could occur some time in the second half of this year. Bitcoin trends also imply that the next bull market may elevate Bitcoin’s price by roughly 1,000-2,000% from the $4-5K lows, and or by about 5 times from the prior top. This implies Bitcoin will likely hit a top of around $100K during its next bull market. Therefore, if you believe in Bitcoin and think it can play a significant role in the world’s financial system, this is probably a good time to start building a position or to add to existing positions in Bitcoin and in other systemically important digital coins.
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Disclaimer: This article expresses solely my opinions, is produced for informational purposes only, and is not a recommendation to buy or sell any securities. Investing comes with risk to loss of principal. Please always conduct your own research and consider your investment decisions very carefully.
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