Maker Minds — A Bitcoin special edition — Did we reach the bottom?
Hey, you! Welcome to a very special edition of Mind Makers.
After 12 weeks of consecutive drop, we are in an extreme fear market. When everyone is panicking, it’s the best time to start loading your crypto bags.
1. Did we reach the bottom?
We have clearly entered the capitulation phase of the bitcoin market as this indicator on Glassnode shows. The higher the price of bitcoin, the more confidence and belief the players have, and this is reflected on Glassnode. On the contrary, the more the price of bitcoin falls, the more the players start to panic, and we have entered a phase of capitulation which is shown in pink on this indicator.
It was during this phase that the bottom and the last cycle were reached in 2015 and 2018. This does not mean, however, that just because we entered the capitulation phase that we have necessarily reached the bottom. For example, in the last cycle, Bitcoin entered the capitulation phase when it was worth $6,000. The lowest point was around $3,000. This is the first element that shows us that it is quite possible for bitcoin to go much lower but to what level? This is what we will see in the following.
2. To what levels we can drop?
There are psychological levels in the market because what makes the market is the players who make it up. So many will analyze the last two bear markets. When we look at the last two lows that were reached in 2015 and 2018, we see that compared to its highs, Bitcoin lost in the first case 82% of its value and in the second case 83% of its value. If we compare it with the last high that we reached during this cycle, it is about $69,000. So it's quite possible that it could go lower, and if we take 82% of its value as a reference, like the last two bear markets, we'll get a bitcoin at about $12,000. We shouldn't take this figure as an absolute certainty, but it gives us a first price target, an ideal entry point for recharging in crypto. Let's look at other elements to confirm this entry point.
3. Technical Analysis
It is essential to make a technical analysis of a market to know when it is the right time to buy and when it is the right time to sell because, despite all the price predictions that can be made, the market is always right. There are psychological levels that allow us to establish entry points and that are defined by the market players. When the price has a tendency to stop and to go back in the opposite direction, we have reached a psychological level. Here what interests us is to know on which support the market will land and then go back up. If we look at the market in its monthly time unit, we can see that the next major support is between $13,880 and $10,760. If we average the difference between the two, we get $12,380. This is an additional probability that bitcoin will go for this $12,000 level. However, with this information, it is quite possible to start charging up on the upper support boundary ($13,880).
4. The ideal entry point?
Let's look at the real value of Bitcoin, its intrinsic value, so that we can buy the crypto in June 2022 and take advantage of this bear market with an ideal entry point. The best value for buying Bitcoin is the value at which those who produce it will mine it. this is called the production price. We have a great indicator on the market that lets us know what the production price of Bitcoin is at any given time. We can see that it is currently between $20,000 and $30,000, which means that the farms that mine Bitcoin at the best rates are currently getting it at $20,000. It is usually when the market is close to the production price that it bottoms out, as you can see from the red circles on the screenshot. Why? Because Bitcoin farms account for a large majority of the supply of Bitcoin, and if they are mining Bitcoin for, let’s say $18,000, they have no interest in selling it when it is $19,000. All of this results in a much weaker selling force, so when the market gets close to its production price there are fewer Bitcoins in circulation, which consolidates the price and creates a bottom in the market. As a long-term investor, a good crypto investment is when Bitcoin gets close to its production price.
Bitcoin is the crypto that leads all the other cryptos, but it is also led by another market that we will see right away and that will help us add probabilities to know when we have reached the bottom of the market.
5. S&P 500
The S&P 500 is a risky asset and is therefore correlated to the crypto markets, which are also risky assets. By analyzing the S&P 500, we can get additional information that will help us know when to buy. There is a trick to this. The S&P 500 has been on an uptrend since 2009, which corresponds to the subprime crisis. So we come back to the 2009’s low and we will use the Fibonacci Retracement to find the psychological levels to buy. We will look at the level of 0.382 which is represented in red on the screenshots, it is a very important level because it generally allows identifying the lows on the market. For example during the covid crisis, if we take the high that we had reached at that time, the low was formed around the level of 0.382.
So we can see that in our current situation the S&P 500 has room to go test the 0.382 level. So we will have to watch the evolution of the S&P 500 for additional confirmation that we have reached the bottom of the market.
5. The right moment to load your bags?
So now that we’ve seen all these elements, to the question is this the right time to buy crypto, my answer is PATIENCE. Patience because the probabilities show us that bitcoin has more chances to go towards the levels we just saw in this analysis than to go up immediately. We have just made the analysis of several technical elements but we must especially take into account what is happening now in the real world. We’ve just witnessed a war between Russia and Ukraine, a crack has taken place on a stable coin, Luna, and industry giants like Celsius are going bankrupt. So we have to take all these elements into account and I think that the bear market will last for quite some time but that doesn't necessarily mean that we will go much lower, but, volumes will slow down. We will surely enter a period of range and indecision, but it is also the best time to load up on crypto. Personally, I will start to DCA when bitcoin starts to reach $14,000, and then I will buy the major levels which are around $12,000 dollars and $10,500 if we reach them.
I hope you enjoyed reading this analysis!
Click here to connect on Linkedin.