The bitcoin (BTC) bear market of 2022-2023 was a doozy. Having additionally held bitcoin by means of the bitcoin bear market of 2018-2019, I can attest that this one was simply as painful regardless of being barely shorter and having a much less dramatic most drawdown.
Maybe my elevated monetary publicity this time was the rationale for this issue. Or perhaps it was my shattered hopes for better-informed mainstream media protection, as I discovered myself addressing the identical previous worries as earlier than (prohibition, quantum computing, environmental results).
Regardless, I’m glad to see the tail finish of this bear. Though nothing is definite, barring any important damaging surprises, just like the COVID-19-induced bitcoin liquidation of March 13, 2020, the bitcoin bear market of 2022-2023 is probably going over. Right here’s why:
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The halving is nigh. The Bitcoin halving, which reduces the issuance fee of recent bitcoins, occurs roughly each 4 years. The prior two halvings each catalyzed main bitcoin bull markets. It’s not exhausting to see why. Holding demand fixed, a downward provide shock forces an upward recalibration in worth. Provide and demand at all times rule, and when provide is reduce the worth rises. The following halving is lower than a 12 months away.
No extra vacationers. As soon as the halving-induced bull begins working, it at all times attracts the momentum crowd. These merchants see the bitcoin worth rising they usually pile on. This causes a bubble that ultimately ends, they usually get washed out within the months following the height. At this time we’ve got handed the washout level, as evidenced by the common age of bitcoin unspent transaction outputs (UTXO). The vacationers are gone, and the HODLers stay.
Extra dangerous information can’t trigger new lows. Final 12 months had loads of dangerous information in cryptoland, and that carried over into bitcoin’s worth. Terra, Three Arrows Capital, Celsius Community, BlockFi, Voyager Digital, FTX and others all fell aside. However this 12 months the chapter of Genesis and worries about DCG, Grayscale and Binance didn’t take bitcoin right down to new lows. The final of the sellers had been already washed out. (CoinDesk, like Genesis and Grayscale, is owned by DCG.)
The cycle repeats: Sometime Bitcoin will outgrow its four-year worth cycles. Till then, it’s “deja vu another time.” Within the bitcoin bear market of 2014-2015, the worth gravitated to round $350 till lastly capitulating to $200 and staying there for months. Within the bitcoin bear market of 2018-2019, the worth gravitated to round $6,000 till lastly capitulating to $3,200 and staying there for months. And within the bitcoin bear market of 2022-2023, the worth gravitated to round $28,000 till lastly capitulating to $16,000 and staying there for months. In every of those instances, the worth adopted an analogous sample of a peak, a multi-month sequence of lower cost highs and a last capitulation of over 40% that lasted for a number of months, staying true to the previous traits.
So what does the long run maintain? I don’t make short-term worth predictions. But when bitcoin’s four-year cycle performs out once more, and I count on it can, then just a few issues are true.
We’ll most likely by no means see $16K bitcoin once more. Two cycles in the past, bitcoin’s worth by no means revisited the lows after it returned to the pre-capitulation worth low. One cycle in the past it nearly revisited the low, nevertheless it required a large market liquidation as a result of COVID-19 pandemic. The following bitcoin halving is lower than a 12 months away. Absent a serious liquidation occasion, bitcoin’s worth has doubtless bottomed.
Bitcoin stays regulatory teflon. Bitcoin has confirmed to be comparatively resistant to regulatory pressures. It’s been clear for years now that bitcoin is a commodity and never a safety. Even the ultra-active present Securities and Alternate Fee Chair Gary Gensler, who has been probably the most lively and aggressive chairman I’ve seen in my skilled profession, admits that there’s just one crypto asset that’s clearly a commodity (and, by implication, not a safety). He clearly means bitcoin. With or with out him, the SEC will doubtless proceed to pursue actions that indicate the overwhelming majority of digital belongings are securities. None of this threat sticks to bitcoin.
Monetary advisors and establishments are severely under-allocated to bitcoin. I can attest from my involvement with Swan Advisor Companies that monetary advisors and their purchasers are considerably under-allocated to bitcoin. In prior cycles that they had cheap excuses for that positioning, together with a scarcity of cheap merchandise and important regulatory dangers. For the broader digital asset market, these issues largely stay. However for bitcoin they’re largely solved. Due to this fact, I count on main adoption of bitcoin by monetary advisors within the coming bull market.
So, what’s subsequent? Now is an effective time for monetary advisors to start out educating their purchasers about the advantages of together with bitcoin of their funding methods and assist them implement bitcoin allocations of their portfolios. Bitcoin bear markets are nice occasions to build up bitcoin. However the finish of the bear market can also be a good time so as to add a very distinctive asset to any diversified portfolio. The following bitcoin bull market has doubtless simply begun.