Is Now The Time To Buy Bitcoin?
With a recent drop in value of over 58%, Bitcoin posted its second-worst quarterly performance ever.
The structural downtrend from its high in November last year is no real surprise, given that the Federal Reserve and central banks are withdrawing liquidity against a challenging macroeconomic backdrop. It’s not helped by the credit crisis associated with Three Arrows Capital, Celsius and Terra Luna. A credit crisis that highlighted the level of leverage in the cryptocurrency space and the irresponsible risk in play.
Historically, Bitcoin has witnessed significant swings in value. When an asset can deliver returns of 1,400% (2011) and 5,500% (2013), you can expect the occasional 80% drawdown. It comes with the territory.
Some believe that Bitcoin is maturing. However, a mature asset class doesn’t wipe out 80% of its value that quickly. The cryptocurrency space is still quite different from any other asset class. It is still finding its feet; it needs much more adoption and understanding. It clearly needs some regulation around the way people do business in the space so that you don’t have these horrible blowups like Three Arrows Capital.
So is the Bitcoin price now at the bottom? Is now the time to buy? The price chart for Bitcoin may offer some clues.
Spotlight On Cryptocurrency – Is Now The Time To Buy Bitcoin?
Bitcoin Chart Daily
The structure of the Bitcoin price action more recently is essentially some very sharp impulsive moves to the downside. There is retracement; however, they don’t retrace by much. The retracement moves are corrective, choppy moves that happen after the impulsive down moves. The corrective movements are countertrend. So, from a wave structure perspective, Bitcoin is still in a downtrend. Nothing in the chart suggests that it has put in a bottom.
What is interesting is where the impulsive moves to the downside begin. The first 3 moves to the downside are at $50,000, $40,000 and $30,000. Bitcoin is now sitting at $20,000 and again in a period of consolidation. Generally, assets consolidate towards a continuation bias rather than reversal unless an inverted head and shoulders is identifiable.
On that basis, we would expect at least one more significant leg down before a bottom is in and maybe multiple legs down. So, it might be that Bitcoin will work its way down to the ultimate bottom over the next two or three months.
Summary
We are very, very bearish.
Most of the recent price action isn’t based on major macro fundamentals. The illiquidity of the market primarily drives it. Large Bitcoin holders are exiting the market, and smallholders are accumulating. There are challenges in the US equities market. China is struggling, and Europe’s in poor shape. Large economies are struggling, and it isn’t easy to see where the long-term driver of inflows into the cryptocurrency space will come from. On that basis, there is potential for another 50% drop and the possibility that Bitcoin doesn’t bottom out until it hits $10,000.
To be confident that Bitcoin has put in a bottom, there would need to be a nice, impulsive solid rally off the low. That clearly, is not evident in the recent low.
So now is the time to be patient. There will be an excellent bargain-hunting opportunity in Bitcoin; however, the chart indicates that it’s not there yet. Even if Bitcoin bottoms before stock markets bottom, missing the first 20%, 30% rally on something that can increase in price tenfold is a trade-off against risk worth waiting for.
