Bitcoin slumped last week to $16,000 USD, the lowest it’s been in almost two years.
From a peak of $69,000 in November 2021, that’s a fall of 77%.
Worse than that, I don’t think we’re done. I think we could see the $8,000 to $10,000 mark at some stage.
However, here’s the thing about Bitcoin: It’s always been volatile.
Every time Bitcoin has peaked it fell into a deep bear market, took a few years to recover, and then hit new highs.
$30 down to $1 in 2011.
$260 to $45 in 2013.
$1,150 to $152 in 2015.
Big pullbacks like this are nothing new in Bitcoin.
At the end of the day the market is just the market. Have you heard the saying history doesn’t repeat but it does rhyme? Meaning we can’t expect Bitcoin to repeat this pattern exactly, but we can make a pretty good guess it’s going to move something like that.
More important than the historical trend though, and even the price, is what is actually happening to Bitcoin itself.
This is because markets are fickle and the market price at any given time is not a good indicator of something’s value. The long term trend of an asset is a much better indicator.
For example, in 2008 I watched the Global Financial Crisis happen right before my eyes. Stocks plummeted completely irrationally, and I knew this was an ideal time to start building up my portfolio.
For example, Coca Cola dropped from $32 to $20 in the space of a few months, on the back of the banking and mortgage crisis. Coca Cola sells $1 cans of Coke, they have nothing to do with banking or mortgages. But they were plummeting – down 33% in a few months.
We’re talking about a 120 year old company, profitable since forever, probably the most valuable brand in the world. The market was telling me the brand was suddenly worth 33% less because of the mortgage crisis? Did their revenues suddenly decrease 33% because of the mortgage crisis? No.
Those are still some of my best investments – the ones made during that recession.
This is why the market price is not a good indicator of value. Daily price movements are based more on emotion rather than logic. If you’re trying to determine the value of Bitcoin, don’t look at the price. Look at the fundamentals and decide whether or not Bitcoin’s value to the world has increased or decreased.
If you look at the big fall from November 2021 until now, nothing has fundamentally changed in Bitcoin. It still creates a block every ten minutes and is used by people to transfer money around the world. The code has not gotten worse. A better Bitcoin hasn’t come around. It’s the same Bitcoin as it was a year ago. It’s actually bigger and better than it’s ever been.
Let’s look at some of the developments the crypto industry has made since the last bear market:
Stan Druckenmiller, one of the the world’s top macro investors, holds Bitcoin and thinks it could be comparable to gold.
Ray Dalio, founder of the world’s biggest hedge fund, added Bitcoin to his portfolio.
Jim Miller, one of the most successful investors alive beating the market 15 years straight, says his portfolio is now 80% in just two assets: Amazon and Bitcoin.
Robert Kiyosaki, author of Rich Dad Poor Dad is now a Bitcoin investor and extremely bullish.
Coinbase, the biggest crypto and Bitcoin exchange in the US listed on the NASDAQ and is now a publicly audited company.
Elon Musk invested $1.5b of Tesla’s balance sheet into Bitcoin and said he believes “Bitcoin will succeed”.
Billionaire Paul Tudor Jones, one of the investors who predicted and profited massively off the 2008 crisis, says he has 1% of his portfolio in Bitcoin.
Billionaire Jack Dorsey, founder of Twitter and current CEO and founder of Block (formerly Square) is a devoted Bitcoin bull, building Bitcoin into all of Block’s products, holds Bitcoin on Block’s balance sheet, and has founded an organisation with Jay Z to develop Bitcoin in Africa.
JPMorgan, whose CEO claimed Bitcoin was a scam and any employee trading it would be fired, now has a crypto analyst team, offers clients Bitcoin trading services and six crypto funds.
El Salvador became the first nation in the world to make Bitcoin its official currency, meaning it can be used as legal tender for sales and business.
Ukraine fast-tracked crypto legalization in the country after realising how beneficial it could be during the war with Russia.
Honestly, I just typed all these from memory, and there’s 100 other interesting developments in Bitcoin I could add. If you follow publications like Bitcoinist or Coin Telegraph, significant developments are being announced daily.
Of course, we have had bad news too.
I expect quite a few more exchanges to fall over before we’re done.
Of course this is nothing new – Cryptopia, Mt Gox, Quadriga, Youbit, BitGrail, and probably hundreds more exchanges have toppled over the years, none quite as big as FTX, but it has happened many times and will continue to happen.
However, shitty exchanges are completely unrelated to Bitcoin as an asset. With or without them, the Bitcoin chain keeps on chugging.
We can see that if we look at a few fundamental metrics:
This is the log chart of the BTC hash rate:
Hashing refers to the computational power required to secure the network. As you can see, the hashing activity trends upwards over the long term.
Remember this is a log chart, so it should naturally flatten (but remain upward trending) as we move up the y-axis.
This is the log chart for the number of daily Bitcoin transactions.
Again we can see this dips and peaks like any regular chart, but there’s no sign usage is dying, and it’s up from previous bear markets.
This chart represents the number of unique Bitcoin addresses being used.
Again, it dips and peaks, but is reasonably stable. You can see we’ve grown from about 400k to 650k since the last bear market.
So if there the hash (miners) on the network is growing, addresses are growing and transactions are growing, we can assume Bitcoin as a useful asset is still healthy and improving. Not to mention all the developments in Bitcoin that I went through earlier.
Let’s look at the price chart
Charting is always helpful to find trends.
Let’s take a look at the chart for Bitcoin since inception:
The standard chart doesn’t show us clear trends. All the movement between 2009 and 2016 is practically invisible.
Because the movements have been too great.
For example, when Bitcoin went from $10,000 to $20,000 – a 100% gain – it takes up half the chart.
However, when Bitcoin when from $10 to $20 – also a 100% gain – you can’t even see it.
Therefore to find trends, it’s much more effective to use a logarithmic chart, which charts movements based on magnitude (percentage).
Here’s what the same chart looks like on a logarithmic scale:
As you can see, people always claim Bitcoin is “stupidly volatile”, but on a logarithmic scale there aren’t too many surprises in this chart. If you flashed this chart at someone and told them it was the Dow Jones, they’d probably believe you.
So how can we use this to make a price prediction?
The best way is again, to look at history.
If, hypothetically, the previous bear markets lasted 400, 450, and 380 days, we could make an educated guess that this bear market will last 400ish days too.
We can also make the educated guess that it probably won’t last 20 days, or 2,000 days.
History doesn’t repeat, but it does rhyme.
To analyse this, let’s take the Bitcoin chart and put it into a spreadsheet:
Let’s break this down a little.
As for bull markets:
- From August 2010 to June 2011, Bitcoin went from 7 cents to $35. It took 296 days.
- From November 2011 to April 2013, Bitcoin went from $2.29 to $198. It took 506 days.
- From July 2013 to December 2013, Bitcoin went from $68 to $1,151. It took 152 days.
- From January 2015 to December 2017, Bitcoin went from $177 to $19,290. It took 1,068 days.
- From December 2018 to November 2021, Bitcoin went from $3,124 to $68,997. It took 1,064 days.
As for bears:
- From June 2011 to November 2011, Bitcoin went from $32 to $2.29. It took 164 days.
- From April 2013 to July 2013, Bitcoin went from $184 to $68. It took 86 days.
- From December 2013 to January 2015, Bitcoin went from $1,151 to $177. It took 406 days.
- From December 2017 to December 2018, Bitcoin went from $19,290 to $3,124. It took 358 days.
So what rhymes can we expect from history here? Here’s a few things I can see:
- The bull is always 2-3x as long as the preceding bear.
- New highs are often hit in November/December.
- Bear market pullback % is between 60% – 90%.
- Bull market gain % is unpredictable.
To be honest, that’s not a lot to work with. With only twelve years of data, it’s hard to draw concrete conclusions. However, making an educated guess is free. So here’s what I’m thinking:
The table shows my predictions in blue.
I guess we’ll hit a bottom somewhere during the first quarter of 2023. This is based partly on my halving analysis I wrote about in another article.
It’s also roughly in line with the ~400 days of the previous two high-to-low timeframes.
I think $10,000 is a good psychological bottom.
That would give us a 85% pullback, which wouldn’t be an outlier according to the table (it actually lines up perfectly).
We said earlier bulls tend to be around 2-3x as long as bears, and end in November or December. If we put it at December 2025, that’s almost an exact match to the previous two bull cycles (1,065 days versus 1,068 and 1,064 days).
Now what about price?
If you look at the numbers, each all-time high is higher than the previous one by at least a factor of 3:
If we take a 3x increase, that would put us at $210,000.
$210,000 would also make it a 2,000% rise from the previous low – about the same as the previous bull run.
Why I Think It Will Happen:
The first reason is smart money. Institutional money is flowing into crypto right now under the radar. Of course, when large amounts of money is being moved, people don’t like others to know about it. It is far more beneficial for institutions to be doing their purchases off-market, so they can continue accumulating at a low price. What I see happening right now is a lot of retail investors selling their Bitcoin, and most of the buyers seem to be institutions. This is a classic transfer of wealth – dumb money to smart money.
Bitcoin is stronger than ever
Bitcoin is stable. Lightning Network is growing stronger, fees are extremely low, and the network is as stable as ever. It’s now the official currency of two countries – meaning a digital currency that was started from nothing has now became the legal tender currency of not one but two nation states (and more will follow). People should really think about what a phenomenal achievement that is. US and UK publicly listed companies now hold Bitcoin on their balance sheets. Many superinvestor billionaires (who generally know things that you and I don’t) are now Bitcoin hodlers. Every day the Bitcoin network becomes stronger as more developers work on it, more nodes come online and the hash rate increases. This all moves the network closer to mass adoption.
Huge investment is taking place
$14.2 billion of VC money poured into crypto projects in H1 2022, despite Bitcoin tumbling 80%. The market is mature and the smart money knows crypto isn’t going away. Take a look at some of the biggest financial organisations in the world and their crypto investments you haven’t even heard about:
Media coverage will enable mass adoption
After the bull run of 2017, Bitcoin is now a household name. Many people still don’t understand it, but almost everyone has heard of it. You now have thirteen-year-olds who have never lived in a world without Bitcoin. It is part of the human lexicon now, and more importantly, a standard part of finance. When kids start investing, they will want Bitcoin.
Bitcoin was built to thrive in inflationary environments. Its fixed supply and non-sovereign nature means it functions naturally as an inflation hedge, much like gold. As inflation starts to spiral upwards in 2022, Bitcoin is perfectly placed to become the store of value of choice.
It follows the trend
As we saw in the charts earlier, Bitcoin tends to follow a reasonably strong trend. My prediction falls in line with that trend nicely.
Why I think it might not happen
Of course, no prediction is guaranteed, and these are the reasons why I think it might not come true:
First, the world is possibly entering a recession and Bitcoin has never existed in a deep recession before. How the world reacts to it can be predicted but nobody knows for sure. Personally, I think it makes sense for its value to increase during a recession, especially a stagflationary one, as fiat currencies become less stable, but nobody can guess.
We could also see a big crackdown on government regulation or complete outlawing of cryptocurrency. I don’t believe this will happen, nor do I believe it will work – crypto is resilient to any kind of censorship, if I think if governments believed they could ban it, they would have done so already. But, any government meddling would have a downward impact on the price.
The only other concern I have about Bitcoin not reaching it’s previous high is some kind of Black Swan event. Maybe a sudden failure on the Bitcoin network by some freak event, some kind of super hack (which is possible but unlikely) or any other unforeseen event I can’t think of right now.
There’s my prediction and the reasons behind it. $200,000 by the end of 2025. Possibly sooner. That’s looking to be a return of around 1,100% in a little over three years. Place your bets.