Not All Bitcoin Doubts Are Substantial

Has bitcoin hit the bottom? It is plausible, but the majority of observers seem to think not. In favor of the argument that a bottom has been found, there are elements of technical and on-chain analysis that viewed from a certain angle, can support that position.

Look at the weekly candles and you can discern what might become a double bottom, suggesting a trend reversal. Advocates for bullish hints point to an indicator called the Hash Ribbon, which suggests miner capitulation is over (a positive sign), and there is the MVRV Z-score, which has bitcoin now marked out as being significantly undervalued.

According to those perspectives, a bottom might, in normal circumstances, have been ground out already, and it wouldn’t be a bad time to accumulate. But then, we are not in normal circumstances, and so analyses both technical and on-chain are being performed within a novel context. Taking into account the precarious economic environment, it’s reasonable to anticipate erratic price behavior that deviates from previous patterns.

In fact, we’ve already seen evidence of this, when bitcoin crashed to its current cycle low of around $17,700 back in June. This was a departure from its normal behavior in that it dipped lower than the previous cycle’s high (just below $20,000 in December 2017), while in all previous cycles, bitcoin’s low point had remained above the previous cycle’s high point.

And, so we find ourselves in what might be uncharted territory and seriously considering the possibility that this time around, anything could happen. Those not acquainted with bitcoin and its cycles might assume that such unpredictability has always been present, as bitcoin has a reputation for volatility, but volatility and unpredictability are not the same thing, and much depends on your time preference.

Bitcoin volatility has in fact occurred within larger, cyclical, identifiable patterns and, zoomed out, it’s those longer-term predictable trends that have established bitcoin’s status as a historically upward-moving technology.

Gloom Is Still in the Air

A bleak (or at least short-positioned) mood has become markedly present around bitcoin predictions, echoing a wider sense of frazzled nervousness in the markets.

Perhaps the jitteriness is down to perception (whether real or imagined) that established patterns might no longer be reliable, coupled with what feels like once-in-a-generation political and economic events around energy supply breakdown and global deleveraging.

There are also bitcoin-specific stories circulating the crypto space, some of which elicit valid concerns, and some of which may be overblown.

One sub-plot revolves around Mt Gox, which has recovered some of the bitcoin it lost in a hack in 2014 and will soon return the lost funds to its former users, leading to speculation that this will negatively impact bitcoin’s price.

While it’s true that Mt Gox is set to unload a sizable batch of once-lost coins, it seems unlikely that this windfall will be capable of crashing the market. The coins will not be released all at the same time, and furthermore, it’s unlikely that everyone who is reimbursed will immediately sell everything they receive.

Then there are stories about MicroStrategy and Michael Saylor, around whom crypto chatter is constant (although to be fair, the chatter is often driven by Saylor himself, who has no hesitation in voicing his bitcoin maxi-oriented perspective).

The news here is that Saylor and MicroStrategy are being sued by the attorney general of the District of Columbia for tax fraud, an accusation they deny. The resultant speculation is that this could result in MicroStrategy liquidating part of its substantial bitcoin holdings, thereby creating outsized sell pressure. However, this possibility remains squarely in the realm of imaginative theorizing, with too many unknown variables to be a solid concern.

Influential Factors Converge

Of provably concrete importance to bitcoin's price is the relative strength of the US dollar, which has been increasing and looks set to continue along that trend while the Federal Reserve remains committed to battling inflation. The inverse correlation between risk asset prices and the strength of the dollar is clear and present, so this is a headwind for bitcoin.

This leads to another significant detail, which is that bitcoin is currently, to most investors, bundled up tightly with tech stocks and risk-on assets. This may very well change in the future as comprehension grows that bitcoin is a unique proposition, but currently, mainstream perceptions are not yet at that stage.

And, then there is the increasingly tangible atmosphere of generalized bear market fear that is most intense around cryptocurrencies.

However, here we can actually see those reassuring, cyclical patterns reasserting themselves, as at this stage in the bitcoin and crypto cycle, we should expect the dominant sentiments to be feared and doubted.

Perhaps, then, in certain respects, the current situation is not so unique after all. Ultimately, as always, the one critical factor when it comes to sending prices higher is how much money is flowing into the crypto markets. And, while it may at this moment be difficult to see where a potential inflow comes from, one future change that is as close to certain as you can get, is that new catalysts will emerge.