Is This The Bottom For Bitcoin?

Is This The Bottom For Bitcoin?
Jonathan Hobbs

over 1 year ago3 mins

  • It can be difficult to call the bottom of any bear market – let alone a bitcoin one. But by analyzing past bitcoin bear markets, you can gain a better idea of what could happen next.

  • If previous bitcoin bear markets are anything to go by, bitcoin’s price, which has already dropped by 74%, could still go a bit lower.

  • After two previous bear markets, bitcoin lingered in a low-volatility trading range. If that repeats, there could be more time to dollar-cost average in, at potentially attractive prices.

It can be difficult to call the bottom of any bear market – let alone a bitcoin one. But by analyzing past bitcoin bear markets, you can gain a better idea of what could happen next.

If previous bitcoin bear markets are anything to go by, bitcoin’s price, which has already dropped by 74%, could still go a bit lower.

After two previous bear markets, bitcoin lingered in a low-volatility trading range. If that repeats, there could be more time to dollar-cost average in, at potentially attractive prices.

Mentioned in story

It’s practically impossible to call the bottom of any bear market, let alone a bitcoin bear market. But looking at the OG crypto’s history might help you get a sense of whether it’ll dip any lower than the 74% it's crashed from its peak already, and what to do next. Let’s take a look.

What exactly constitutes a bitcoin bear market?

In a stock index, a bear market is usually defined as a 20% decline from a recent high. But that definition falls to the wayside with bitcoin – or indeed with anything in crypto – as 20% drops are a dime a dozen. Crypto is volatile, after all, and assets with smaller market values need far less selling pressure to nuke the price down 20%. Bitcoin currently has a market value of around $400 billion, which is a drop in the ocean compared to the $40 trillion market cap of the S&P 500.

So here’s how I’ll define a bitcoin bear market for this analysis: a prolonged downtrend in the price that lasts at least six months (26 weeks) and ends with the crypto down more than 60% from where it started. There have been three of these in the last decade, and this chart shows each of them:

Previous bitcoin bear markets. Chart drawn with TradingView using bitcoin prices from Bitstamp.
Previous bitcoin bear markets. Chart drawn with TradingView using bitcoin prices from Bitstamp.

Bear market 1 was the most severe of the three, with an 87% drop in bitcoin’s price that lasted 59 weeks from top to bottom. It was followed by a period of low volatility, with bitcoin lingering in a narrow price range for another 40 weeks, until its next major rally.

Bear market 2 was fairly similar: an 84% drop that lasted 52 weeks. But in this case, it only took bitcoin another 16 weeks to get going again. Still, it wasn’t exactly a “V-shaped” recovery.

Bear market 3, on the other hand, was short and sharp, with a 72% decline that lasted 37 weeks overall. This one was different: most of the drop came in March 2020 – when the Covid-19 panic rattled markets.

For bitcoin, though, the losses were short-lived. As governments responded to the pandemic crisis with record stimulus packages, investors jumped back into markets, and bitcoin and other risk assets rebounded strongly.

How does this bear market compare so far?

The chart below shows what’s become of bitcoin since it peaked at $69,000 in November of last year. It touched a low of $17,700 a couple of weeks back – a 74% drop in 31 weeks.

Current bitcoin bear market. Chart drawn with TradingView using bitcoin prices from Bitstamp.
Current bitcoin bear market. Chart drawn with TradingView using bitcoin prices from Bitstamp.

And if that $17,700 level was the bottom, that would make the current bear market milder than bear markets 1 and 2 in terms of price declines, and shorter than all three in terms of the time taken to reach the low. Except, that might not be the bottom.

Bitcoin’s price could continue to fall. In other words, things are bad, but they could still get worse by historical standards. If the current bear market turns out to be as bad as bear market 1, for example, an 87% decline would put bitcoin’s price at around $9,000. And bitcoin would still have another 26 weeks to get there. And if it turns out to be as bad as bear market 2, bitcoin would reach about $11,000 in 19 weeks time.

So what’s the opportunity here?

Bear markets can seem like a dark cloud, but there could be two silver linings here. First, with that 74% drop, we’ve probably seen most of bitcoin’s downside already – if history is anything to go by. And second, remember that after two out of the past three bear markets, bitcoin spent a while – 40 weeks in one case – just hanging out in a lower price range. If that cycle repeats, you’d have more time to dollar-cost average in, at potentially attractive prices. Historically, that’s been a winning strategy with bitcoin.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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