How low will Bitcoin go?

Key Concepts

• Terminal Price: A theoretical price level calculated as 21 times the transferred price, often acting as a resistance level during euphoric market phases.
• Realized Price: The average price at which all bitcoins were last transacted, considered a key support level in bear markets.
• Balance Price: Calculated as the transferred price minus the realized price, another important support level during bear markets, often marking potential bottoms.
• Euphoric Top: A market peak driven by excessive optimism and FOMO (Fear Of Missing Out).
• Apathetic Top: A market peak occurring with little public interest or enthusiasm.
• Bare Market: A prolonged period of declining prices.
• Midterm Year: The year following a Bitcoin halving event, historically associated with bear market activity.
• Bull Market Support Band/Bare Market Resistance Band: Areas on a chart representing potential support during bull markets and resistance during bear markets.
• Supply in Profit and Loss: An indicator showing the percentage of Bitcoin supply held at a profit or loss.

Historical Levels and Bear Market Dynamics in Bitcoin

This video analyzes historical Bitcoin price action, focusing on two key levels – the realized price and the balance price – that Bitcoin tends to fall below during bear markets, particularly in midterm years. The presenter argues that understanding these levels is crucial for navigating current market conditions.

Terminal Price as a Cautionary Indicator

The presenter introduces the concept of the “terminal price,” calculated as 21 times the transferred price. While historically a top indicator, it’s now considered less important than the realized and balance prices during bear markets. He notes that Bitcoin often tops above the terminal price during euphoric phases (2011, 2013, 2017, early 2021). Reaching the terminal price is a signal to exercise caution. However, the current cycle is different; Bitcoin hasn’t approached the terminal price, topping instead on apathy rather than euphoria.

Apathetic Tops vs. Euphoric Tops

The key distinction is made between “euphoric tops” – driven by widespread FOMO – and “apathetic tops” – characterized by a lack of public interest. The presenter points out that Bitcoin’s 2019 top occurred during a period of apathy, similar to the current market sentiment. In 2019, Bitcoin topped around 13K while the terminal price was double that (26K). Similarly, in 2021, Bitcoin topped around 69K while the terminal price was over double that (145K). In both cases, Bitcoin topped around 50% of the terminal price.

The Inevitability of Falling Below Realized and Balance Prices

Despite not reaching the terminal price in these apathetic tops, Bitcoin still eventually fell below both the realized price and the balance price. The presenter emphasizes that this pattern has been consistent throughout Bitcoin’s history. He cites examples from 2011, 2015, 2018, and 2022, where Bitcoin bottomed after falling below the balance price. In 2022, Bitcoin bottomed right at the balance price of $15.6K (approximately $65K in the transcript).

Current Market Context and Potential Bottoms

The presenter argues that, despite the unique circumstances of the current cycle, the historical pattern suggests Bitcoin will likely drop below the realized price (currently $55K) and the balance price (currently $40K) before a durable bull market emerges. He acknowledges the uncertainty, stating, “No one knows” where the bottom will be, but emphasizes the consistency of this pattern across previous midterm year bear markets. He notes that even the 2019 apathetic top eventually led to a drop below the balance price, even considering the impact of the pandemic.

Cyclical Patterns and Historical Drawdowns

Historical Drawdown Percentages

The presenter analyzes historical bear market drawdowns, noting a trend of decreasing severity with each cycle:

• First Bear Market (2011): 93-94%
• Second Bear Market (2015): 87%
• Third Bear Market (2017/2018): 84%
• Fourth Bear Market (2022): 77%

He suggests that this pattern may continue, potentially leading to a drawdown of around 70% in the current cycle, which would place Bitcoin just below the balance price.

Timeframe and Capitulation

He highlights the typical timeframe of a bear market: an initial drop, followed by a period of sideways consolidation, and then a final capitulation in the fourth quarter of the midterm year. He uses the example of 2014/2015 to illustrate this pattern. He suggests that a potential bottom could occur by May, but acknowledges the possibility of a later capitulation.

Indicators and Market Sentiment

Moving Targets: Realized and Balance Prices

The presenter stresses that the realized and balance prices are not static values. They change over time, meaning that the levels observed today will be different in six months. He provides examples of how these prices differed in November 2023 compared to the present.

Bullish vs. Bearish Sentiment

He observes a correlation between market sentiment and the accuracy of predictions. He notes that those who were bullish in December are now more confident in a bottom, while those who were bearish are more open to the possibility of further declines. He cautions against being swayed by bullish narratives, particularly from those who previously predicted a supercycle.

Supply in Profit and Loss

The presenter mentions the importance of monitoring the "supply in profit and loss" indicator, noting that these two lines always cross during bear markets, even during the pandemic crash.

Alternative Investment: Gold

The presenter suggests that, despite his own affinity for Bitcoin, gold currently presents a more attractive investment opportunity. He points out that Bitcoin has consistently bled value against gold during midterm years (2014, 2018, 2022, and potentially 2026). He suggests that if Bitcoin can sweep the high on gold from the prior cycle, it could also sweep the low.

Conclusion

The presenter concludes that while the current market conditions are unique, historical patterns suggest that Bitcoin is likely to fall below the realized and balance prices before a sustainable bull market can begin. He emphasizes the importance of sticking to data-driven analysis and recognizing that bear markets are inherently unpredictable, capable of making both bulls and bears look foolish. He advises against getting “married” to a single price target and encourages viewers to consider alternative investments like gold. He reiterates that bare markets make fools of both bulls and bears, and that the cycle will likely continue to play out as it has in the past.

Notable Quote:

“Bare markets make fools of both bulls and bears. They really do.” – The Presenter.