Bitcoin and Ethereum recently fell below their previous bull market highs of $20,000 and $14,000, respectively. This has many wondering if the bottom of the crypto bear market is in and how much lower we could go before the crypto market starts to stabilize. Today I intend to answer these questions by examining a series of indicators, including previous crypto lows, stock market correlations, on-chain analytics, and even institutional price modeling. Make no mistake, this is an article you cannot miss. Let’s see how much more crypto prices could dive. Moreover, right now there is one more freedom way for you. This is a Jet-Bot that is used for beginners to copy best traders and follow all their deals automatically. The platform uses Binance trading bots and is an official broker of the Binance exchange. You may begin your freedom right now with Jet-Bot!
The Crypto Bear Market
I’ll start by emphasizing that almost everything in this article is speculation, and that’s because nobody knows the future, not even me. All I can do is make predictions based on the best information I have to hand, information that could change at a moment’s notice. As such, you can think of me as your crypto weatherman.
You don’t need to look outside or rather look at the coin market cap to know that it’s been raining red in the crypto market for months now, specifically since November. This is because November is when Federal Reserve chairman Jerome Powell announced the Fed would begin raising interest rates in response to inflation, which has been rising ever since. The practical effect of this is that trillions of dollars that have been injected into the economy, mostly in the form of debt, are now being slowly sucked out of the economy. This is because individuals and institutions are rushing to pay these debts down before interest rates rise further, selling lots of assets along the way.
This epic reversal of liquidity has caused the crypto bear market we’re in now. It is slowly but surely pushing most stocks into bear market territory too, and it looks like the housing sector could soon follow suit. Don’t get your hopes up that a 20% decline on an expected 20% gain means prices will stay the same.
Given that the fed is ultimately raising interest rates to fight inflation, it’s likely that assets across the board will continue to collapse so long as inflation remains high, simply because it means the Fed is going to continue raising interest rates in response to sucking yet more money out of the economy. When the crypto bear market could end previous interest rate cycles, previous stock market cycles and previous crypto market cycles, all suggest that the crypto bear market could continue for at least another year, possibly even two years.
However, we could very well see a sudden recovery across the board if some of the factors contributing to this inflation on the supply side are resolved, namely the war in Ukraine and the pandemic that we’re still technically in.
Assuming none of these supply side issues are resolved and the crypto bear market continues for the expected one to two years, this begs the question of where exactly the bottom of the crypto bear market will be and how low crypto could go.
Previous Crypto Cycle Lows
Finding out where the bottom of the crypto bear market could be, begin with BTC. That’s because bitcoin leads the crypto market. Whatever BTC does is what the altcoins will also do just with more volatility. That’s why a 10% increase in BTC’s price often results in a 15 to 20% increase in price or more for most altcoins. The same volatility applies in reverse: if Bitcoin’s price falls by 10%, most altcoins’ prices will fall by 15% to 20% or more. This is important to point out because I can’t possibly cover every single altcoin individually, nor do I necessarily need to watch all that needs to be watched is BTC.
During the first crypto market cycle BTC hit a high of 32 dollars in June 2011 and fell all the way down to two dollars in November 2011. This translates to a more than 90% drop in price from high to low, and Bitcoin took about five months to reach its bear market bottom.
During the second crypto market cycle BTC hit a high of a hundred dollars in November 2013 and fell all the way down to 180 in January 2015. This equates to a more than 80% drop in price from high to low, and it took more than a year for Bitcoin to reach its bear market bottom during the third crypto market cycle. BTC hit a high of 20 000 in December 2017 and fell all the way down to $3,200 in December 2018. This equates to a price drop of more than 80% from high to low. It took about a year for Bitcoin to find its bear market bottom. During the most recent crypto market cycle Bitcoin hit a high of more than 69 thousand dollars in November 2021. Based on Bitcoin’s admittedly limited historical data, an 80% drop means Bitcoin could fall as low as the $10k to $14k range, and Bitcoin’s bear market bottom could be later this year or early next year.
Obviously, it’s impossible to know exactly when the BTC bottom could be. It’s more than likely that it will be caused by something unexpected that’s objectively bad for the crypto market. As far as I can tell, the first bear market low for Bitcoin was caused by the hack of the now defunct Mt. Gox cryptocurrency exchange shortly after Bitcoin’s first bull market top. Some sources suggest the first bear market low for bitcoin was actually caused by crypto miners selling their bitcoin as it became less and less profitable to mine as its price declined.
The second bear market low for bitcoin was apparently caused by the hack of the Bitstamp cryptocurrency exchange, which took place just a couple of weeks before the low. The story goes that bitcoin holders were spooked by the possibility of another Mt. Gox moment.
The third bear market low for bitcoin was caused by a combination of factors, including big banks like Goldman Sachs and JPMorgan flooding crypto. The SEC is rejecting spot bitcoin exchange-traded fund applications, raising concerns about a regulatory crackdown on USDT stablecoin issuer Tether. I suspect that the next bear market low for bitcoin will be caused by a similar combination of factors, which could very well include institutions and even publicly traded companies like Tesla selling off some of their bitcoin. The SEC has rejected all bitcoin spot ETF applications yet again, and there have been numerous crypto crackdowns.
Previous Nasdaq Cycle Lows
Anyway, what’s crazy is that Bitcoin’s correlation with the stock market seems to confirm that Bitcoin’s low for this bear market could be somewhere in the $10k to $14k range. BTC’s correlation with the stock market is as strong as it’s ever been, and its strongest correlation is with the Nasdaq 100, which essentially tracks the biggest tech companies by market cap. According to arcane research, BTC’s correlation with the Nasdaq 100 is around 0.82, also according to Arcane research. 1 is a perfect correlation.
Whereas most altcoins are 50 to 100 more volatile than Bitcoin. BTC is 50 to 100 more volatile than the Nasdaq 100. BTC is down roughly 60% since the start of the year and the Nasdaq 100 is down roughly 30% since the start of the year.
What’s more is that the Nasdaq 100 has historically dipped around the same time as BTC has, with the Nasdaq 100’s own bear market lows lining up perfectly with BTC’s bear market lows in December 2018.
This might be more than a coincidence given that institutions got heavily involved in crypto during the previous crypto market cycle, and if you watched our video about the Wyckoff method, you’ll know that many crypto traders believe institutional manipulation of the crypto markets began in late 2017.
As you can see, the average drop in the Nasdaq 100 from top to bottom varies quite a bit, with the biggest drawdown being the dot-com bubble crash in the early 2000s, which saw the index drop by more than 75%.
Some would argue that we’re in the same dot-com bubble scenario today, but I would argue that it’s more likely that we’re somewhere in the middle, so to speak. This means that the NASDAQ 100 could still fall another 20 to 25% from its highs, corresponding to a 40 to 50% drop in BTC as to when we could see the NASDAQ 100’s. Its bear market bottom is really anyone’s guess since the time between its previous highs and lows varies even more than its average drop from top to bottom. As far as I can tell, it looks like it’ll be less than a year, which is again consistent with BTC’s own timeline.
Lows For Mining, On-Chain Indicators
Anyhow, besides the stock market correlation, there seem to be several indicators which support the idea that BTC’s low for the current bear market could be between $10k and $14k.
The first set of indicators relates to what I mentioned a few moments ago, and that’s bitcoin mining. The first indicator to consider on the bitcoin mining front is bitcoin’s total hash rate. You can think of hashrate as being the measure of how much computing power has been committed to the bitcoin blockchain. As you can see, bitcoin’s total hash rate fell off a cliff at the end of 2018 and actually hit a bottom around the same time it hit its bear market bottom for that crypto market cycle. This makes sense since bitcoin miners tend to stop mining when BTC’s price falls to the point that it’s no longer profitable.
As you can also see, Bitcoin’s total hash rate completely collapsed last year when China banned bitcoin mining. I would say that this is nothing more than an anomaly given that bitcoin’s total hash rate recovered quite quickly and it’s clear that the upward trend continued afterwards.
More in-depth data from Glassnote’s hash rate indicator reveals that bitcoin’s total hash rate fell by around 50% from top to bottom during the first crypto market cycle and fell by around 50% from top to bottom during the third crypto market cycle.
Oddly enough, bitcoin’s total hash rate continued to rise throughout the entirety of the second crypto market cycle, and I suspect this is an anomaly caused by the invention of specialized crypto mining machines called Asics in 2012, which made mining profitable even at much lower bitcoin prices.
In any case, the admittedly limited data for bitcoin’s total hash rate suggests we could or rather should see at least a 40% drop from the current highs of around 200 Terra hashes per second, which would be around 120 Terra hashes per second when that happens. Chances are the BTC bottom is in now. It’s possible, if not likely, that bitcoin’s total hash rate could soon start to decline as the average cost of mining currently sits at around 20k per BTC according to crypto rank.
However, it’s also possible if not likely that the average cost of mining is slightly lower and that’s because Glassnode’s minor net position change indicator suggests that bitcoin miners haven’t been selling much of their BTC lately. The miner net position change indicator will make it obvious when we reach the point of maximum pain for bitcoin miners. I suspect the actual average cost of mining might be closer to $14k per BTC than $20k per BTC.
Regardless, the fact that energy costs continue to climb in just about every country means that bitcoin miners will start feeling the squeeze around these levels sooner or later, and I’m sure many of them are feeling the squeeze already.
Technical Analysis Lows
Anywho, the second set of indicators which support the idea that BTC is low for the current bear market could be between $10 and $14k related to BTC’s price. The first indicator to consider is called the Volume profile visible range or VPVR. It’s available on Trading View. Note that you do need a subscription to access this indicator, but what I’m about to tell you now should give you all the info you need on this front.
The VPVR basically shows you how much trading volume happened at different price levels in the past. The higher the trading volume, the stronger the support if prices are falling and the stronger the resistance if prices are rising. As you can hopefully see, there was a decent amount of trading volume for Bitcoin around the $18k range. This might be a part of why we bounced from this level and saw a small recovery rally last week that the fact that bitcoin miners had stopped selling their BTC.
Looking further down reveals a massive wave of trading volume for bitcoin that begins at around $12k and peaks at around $10k. This suggests that this is the lowest level bitcoin could fall to and there are likely lots of buy orders waiting to be filled around these levels by institutions and individuals alike.
Other indicators to consider are the Bollinger Bands, relative strength index or RSI, and moving average convergence divergence or MACD. When the price of a crypto falls below the Bollinger Bands, the RSI is below 30, and the MACD has bottomed or is starting to reverse, chances are you’re at or near a local or long-term bottom. If you were to apply these indicators to Bitcoin’s daily and weekly time frames, then everything would be telling you to buy the dip because all three boxes have been ticked more or less. From a bird’s eye view, however, it’s clear that Bitcoin’s price is in a long-term downtrend, which means we must zoom out. As you can see, things look a bit different when you use these three indicators on Bitcoin’s monthly time frame. BTC’s price hasn’t fallen below the Bollinger Bands, the RSI is above 30, and it doesn’t look like the MACD has bottomed out or is even starting to reverse yet.
Extrapolating on the existing trends for these indicators and BTC’s monthly price actions suggest we have at least another few months of drawdown before we see the bottom. Drawing a support line through BTC’s monthly candles reveals the bottom will again be somewhere around $13 to $14 k.
Institutional Model Lows
The last indicator I want to examine today is actually a price model for bitcoin developed by Fidelity’s head of macroeconomics, Jurrien Timmer. For those unfamiliar, Fidelity is one of the largest asset managers in the world with trillions of dollars in its coffers, and it recently made it possible for its clients to invest in bitcoin through their pension accounts.
As you can imagine, Fidelity has lots of data to back up its bullishness on bitcoin, and Jurrien seems to have been the tip of the spear in that regard. At least in the eyes of us retail investors. You see, Jurrien was, and presumably still is, a huge fan of the stock to flow model for bitcoin developed by Plan B, a model which has been thoroughly invalidated by bitcoin’s recent price action.
The stock-to-flow model appealed to Jurrien because it accurately represented the supply side of bitcoin’s economic equation in his mind. All the model was missing was the demand side. Naturally, Jurrien took it upon himself to come up with different ways of measuring the demand side of bitcoin’s economic equation. He eventually settled on the number of bitcoin wallets with a non-zero balance as the best measure of bitcoin wallets that hold at least a bit of bitcoin.
To forecast bitcoin’s future price, Jurrien assumed that the number of bitcoin wallets with a non-zero balance would grow at either the same rate as the internet’s adoption or the same rate as mobile phone adoption. The result is what you see here.
In Jurrien’s supply and demand model puts Bitcoin’s future fair value at around 70K BTC by 2028 assuming it follows the same adoption curve as the internet and a future fair value of around 600K by 2028 assuming it follows the same adoption curve as mobile phones. If Fidelity’s actions didn’t make it obvious enough, Jurrien believes that bitcoin will follow the adoption curve of mobile phones but notes it’s possible that it could be somewhere between the two. Hence why he provides a third adoption curve that combines the two with a 300k BTC by 2028. Not too shabby, but that’s enough of the hopium. After all, we’re here to see how low Bitcoin could go.
Now what’s annoying is that Jurrien’s supply and demand model puts Bitcoin’s price on a logarithmic scale, meaning it’s hard to do any real measuring using the price action of previous cycles, specifically how much Bitcoin deviated below its assumed adoption curves. What is undeniable is that, in previous crypto market cycles, Bitcoin’s price fell significantly below the internet adoption curve.
The fact that it hasn’t done that yet suggests that BTC could fall quite a bit further once again, bringing us slightly north of 10k. $As to when that could happen, I really can’t tell using Jurrien’s supply and demand model. But by now I reckon it’s reasonable to assume the time frame for the bottom is roughly the same as we’ve been talking about too, about half a year from now.
[This article is a transcription of a video made by Coin Bureau]
Original video: https://youtu.be/ihWJrlM-TdQ ]