The Bear Run to Continue?

For Bitcoin investors, this is the worst-case scenario. But it is a real possibility. One of the reasons Bitcoin has come under pressure is inflation. The result has been central banks hiking interest rates aggressively in order to stem the effects of the worst global inflation for over four decades. This drives up the spending of people and starves the broader crypto market of much-needed capital. High inflation has also increased the risks of a possible recession, and this also spells doom for Bitcoin investors.  Over the years, Bitcoin has always responded negatively to crypto regulation headlines. The biggest headlines in 2022 came from executive orders by US President Biden in March. In the long term, the orders seek to create a framework of positive crypto regulation that will not stifle innovation. But on deeper scrutiny, it raises concerns about the energy consumption of Bitcoin and also proposes centralization rather than the core element of blockchain which is decentralization. Whatever the final shape that regulation will take, it is a serious concern for most Bitcoin investors.  From a technical perspective, Bitcoin is also not out of the woods yet. Critics point out that Bitcoin tends to tumble over 80% from its peak prices after a bull run. For instance, after printing a high at around $20,000 in 2017, Bitcoin then entered a bear run that printed a trough of around $3,000. If this is extrapolated from the highs of around $70,000, it implies that Bitcoin can continue its descent to circa $13,000 or even lower if it overextends the move. To gain more insight into the price movements of Bitcoin, you can access interactive technical charts when doing Bitcoin trading with AvaTrade. 

A Case For Bulls

For crypto bulls, the hope is that we are at or nearing a capitulation event in the Bitcoin market. This simply means that fear or uncertainty among participants has dissipated after enough testing of a bottom. All the weak hands or anxious investors have already sold, and we only have HODLers remaining. From such a point, prices can only get higher. With prices hovering around $19,000, which was around the peak of 2017, Bitcoin bulls can only hope that it does not get worse before it gets better. Even a minor bull run would be a reprieve for bulls.  As history suggests, any meaningful or major bull run has always been preceded by a Bitcoin halving event. A Bitcoin halving event is when the rewards for mining Bitcoin are cut in half. This theoretically reduces its supply and inflation and, therefore, pressures Bitcoin prices higher. There will be no halving event until 2024, so prospects of a major bull run are very limited at the moment. But if we extrapolate the data further, there is cause for optimism from current lows.  The first halving event of November 2012 triggered a rally from around $11 to a peak of above $1,100 in 2013. By the time of the next halving in July 2016, Bitcoin traded at around $650. This was around 45% lower from the peak of its previous rally. The 2016 halving triggered a rally that peaked at just below $20,000 in December 2017. By the time of the next halving event in May 2020, Bitcoin traded at around $8,800. This was around 55% lower from the peak of the previous rally. The 2020 halving triggered a rally that peaked just below $70,000 in November 2021. Using this data, we can establish that Bitcoin tends to be around an average of 50% lower from its previous rally by the time of the next rally. This implies a price of around $35,000 before the next halving event around May 2024. This alone can provide hope for short-term Bitcoin bulls. In the long term, after the next halving, there are prospects of further advances beyond $150,000 taking into account how the Bitcoin price rallies after halving events.

Final Words

Bitcoin has displayed sideways price action from the second quarter of 2022. This kind of volatility may appeal to traders rather than investors. In the CFD markets, for instance, Bitcoin traders can profit from leveraged range-bound plays. But for the long-term investor, no matter the amount of speculation, the fact is that Bitcoin prices tend to increase exponentially after every halving event. The idea is, therefore, to hold onto Bitcoin for at least one halving cycle.  The next halving event will be in approximately May 2024, and it provides a significant timeline target for long-term investors. Long-term investors can also implement prudent investment strategies such as dollar-cost averaging to take advantage of the relatively low prices as of September 2022. For short-term traders, it would be prudent to exercise proper risk management because the sideways price action evident in the third quarter of 2022 will most definitely be followed by a large directional price breakout. 


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