How Low Will the BTC Bear Market Take Us?

How Low Will the BTC Bear Market Take Us?

In October 2013, the Silk Road dark web marketplace was shut down by the FBI. The website contained thousands of Bitcoins that were seized by law enforcement. At the time, few understood the potential of Bitcoin and as a result, the police decided to auction it off. Venture Capitalist Tim Draper bought tens of thousands of Bitcoin from the FBI during the auction. At this point, the price of Bitcoin was about $800. Shortly after, Bitcoin entered a harsh bear market which would last the next few years. The price retraced all the way back to $200. However, Draper did not sell at $200 because he understood the market and the technological development behind Bitcoin. Around this time, Draper predicted the price of Bitcoin would reach $10,000 by 2018. This prediction was outlandish at the time, nevertheless Bitcoin climbed to $20,000 in December of 2017. It is impossible to know if this type of market cycle will repeat itself, but if the current cycle follows the trends of 2014, market conditions will become much worse before they improve.

It can often be difficult to evaluate Bitcoin in the short term. Technical analysis is essential, however low volumes create a situation where a few large whales can manipulate the market at will. This may have been the cause for the recent decline in the cryptocurrency market. The BCH fork also could have instilled fear in the minds of investors. Ultimately, there is no true reason for the decline, people merely sold more than they bought.

When viewing Bitcoin in the long term, it is beneficial to be prepared for market conditions similar to the 2014 bear market. If the current bear market follows the pattern of 2014’s bear market, Bitcoin could see prices as low as $1,300-$1,800.

Judging by historical support, Bitcoin would need to test as low as $1,300-$1,800 to complete the entire market cycle. Breaking the critical support level of $6,000 was a significant psychological breakthrough for the market. It may even be an indication that we have entered the second half of the bear market. Also, prominent investors in the field such as Mike Novogratz were convinced that Bitcoin had bottomed at $6,000. Hopefully this will create a flush out period where the majority of speculators will leave the bear market. In addition, our current range below $6,000 creates significant opportunity because there is very little historic support. In theory, this should lead to higher volatility.

Another indication of a potential target is the first measured move from the descending triangle formation. If a capitulation move downward were to occur, the measured move from the descending triangle aligns perfectly with the historic support level at $2,500. If the market is just beginning the second half of the bear market, $2,500 seems to be a reasonable target. This shorting opportunity may be just getting started.

Many will assume that it is a bad thing if Bitcoin were to drop to these levels. Fortunately, at lower levels the multiples and risk/reward ratios are greatly improved. A lower market cap brings higher volatility and more opportunity for traders. Shorting alt coins can be extremely profitable for traders as highly volatile moves continue.

Overall, this sell off is healthy for the market. This is mainly because speculative alt coins have been propped up over the last month due to the stagnate behavior of Bitcoin. Bitcoin was more stable than the S&P 500 for a month period. Therefore, the lack of volatility led traders to search for other opportunities in the alt coin market. Ravencoin and Bitcoin Cash were well above overbought territory and as a result they have taken +20% losses over the last few days.

There may be a longer time frame to the bear market because the strong support at $6,000 should in theory become new resistance. The good news is that the high volatility should continue to provide opportunities for traders as Bitcoin breaks into lower levels.

Disclaimer: I am not a financial advisor. This is not financial advice. Please do your research independently and make objective decisions. This article is intended to educate readers on the recent state of the cryptocurrency market. The author of the article owns cryptocurrency.

Chart Image Source: tradingview.com