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Bitcoin Nearing Bear Market Bottom Based on Past Cycles

Bitcoin Nearing Bear Market Bottom Based on Past Cycles

By Oreld Hadilberg
Reviewed by Tony Spilotro

Table of Contents

With so much drama in the crypto space within the month of November ever since the FTX saga started to unfold, dragging down not only crypto prices, but also big household institutional names like Blockfi and Genesis, investors have been on their edge as to what is going to come next, as the newsflow continues to be hinged on the negative side.

Many traders have since taken to social media to give predictions on Bitcoin’s price, with many self-proclaimed “technical charting experts” saying with “absolute certainty” that the price of Bitcoin is going to go to $10,000. Others are saying that Bitcoin could go to $8,000, while a handful are even saying that Bitcoin would fall to $3,000 or $1,000. However, other than self-drawn charts at best, these traders have not managed to put up any convincing argument nor study that says why Bitcoin is going to fall to those levels. Their bearish comments have sent trader sentiment into an extreme low, which typically ends up getting retail investors caught on the wrong side. While we are not saying that using technical charts is inaccurate, we are mindful that chart reading can be rather subjective due to the biases of the chart reader. Hence, we would like to use other forms of indicators to help our readers understand the market better.

A couple of metrics have been historically accurate in telling Bitcoin peaks and troughs, and we shall be examining the use of one of them, called the “Price Drawdown from All-Time-High”, to see if the bottom this model predicts is anywhere near what “experts” on social media are saying. Read on to find out.

Historical Metric Suggests a Bitcoin Bottom at $12,500

One undisputed metric that has stood the test of time is the price drawdown from all-time-high (ATH). This metric uses how much the price of Bitcoin had fallen from its ATH in previous cycles as a reference guide to predict how much Bitcoin will fall from its ATH in this cycle because while history doesn't necessarily repeat itself in the same way all the time, it often rhymes, and history is often a good guide to what is to come next. Another reason why using historical price drawdown is a good gauge is because most crypto experts and professional traders who can move the market take reference from it when making their investment decisions, which naturally increases the chances of it becoming self-fulfilling. Now, let us start.

Looking at the price drawdown chart below, we can see that so far in this cycle, the price of Bitcoin has fallen about 77% lower from its ATH. In the past two other bear markets in 2015 and 2019, the price of Bitcoin fell around 82% from its then ATH. This means that while we are very near the bottom, we are not there yet, but based on trends seen in the diagram, we are in the midst of getting there in this downturn caused by the FTX contagion. Taking a 82% price fall from this cycle’s ATH would give us an estimate of $12,500 as the bottom for  Bitcoin in this bear market, which is about 25% away from its current price of around $16,600.

Price Has To Hold for 3 Months at the Bottom

Further to getting a price gauge, the diagram above can also help us estimate the time it may take to get there. As we can see from the previous bottoms, in 2015, Bitcoin took almost a year to recover after hitting its bottom, while in the 2019 bear market, the price of Bitcoin stayed around the bottom for about 6 months. Looking at these past two trends, we noticed that Bitcoin stayed at the bottom for a shorter period of time with each successive market cycle, and that the time spent at the bottom halved with each successive cycle. Thus, using this information, we can deduce that the price of Bitcoin could hover around the bottom for about 3 months before its price starts to recover. The only problem is knowing where the bottom could be.

One way we could gauge the bottom is to use the 3 month consolidation estimate we derived above.  We could wait at least 3 months after Bitcoin has formed a new low to see if its price has broken lower again, or if its price has held up for more than 3 months. Currently, Bitcoin has only passed 3 weeks after putting in a new low, which means we have to wait at least another 10 weeks to see if its price has held up around here, or if it has broken lower.

As we already have a price reference in mind of $12,500 should Bitcoin fall the same percentage as its previous two cycles of 82%, it may seem unlikely that the current low of $15,600 is the low for this bear market cycle. However, one point we need to bear in mind is that the percentage drop from ATH appears to lessen with each successive cycle, which means that Bitcoin may not have to fall exactly 82%, it could fall less than that in this cycle. While this makes the guesswork more challenging, it nevertheless paints a more benign picture than the $10,000 or lower prices that many self-proclaimed trading experts are predicting.

Setting a Fixed Entry Price May Not Be Helpful

The most useful takeaway that we can derive from using the historical drawdown from ATH metric would be to use time as a guide. As we are 3 weeks into the current low, Bitcoin will need to spend at least 10 more weeks hovering around the current level and stage a strong rebound subsequently for the current price to qualify as the bottom, which could take us to at least the end of January 2023. If Bitcoin breaks lower between now and then to another new low, we will need to wait at least another 3 months from the date that new low is achieved to determine if that could be the bottom.

For readers who want to wait for a lower price to buy Bitcoin, perhaps setting a time interval to enter based on our explanation above instead of waiting for a set price to hit before entering could be more beneficial, as using the above historical method suggests that a bottom is nearing.

The above are the personal opinions of the author and should not be taken as the official view of the Margex platform. They are also not financial advice and should not be construed as a solicitation to trade. Readers are strongly encouraged to do your own research, conduct due diligence, and assess your financial abilities before doing any investment or trading as these activities carry risks. Should you be in doubt, kindly speak with your personal financial advisor.