Bitcoin Macro Analysis
When uncertainty sentiment becomes a standard, it’s often nice to look back into history and identify patterns in order to understand which context we are at.
While recent events such as centralized exchanges and big funds become insolvent might have aggravated things, the crypto market has already seen huge declines in past cycles.
Bitcoin compared to other assets is indeed relatively new and so is the overall cryptocurrency market. Whilst making a macro analyzing in a relatively new asset isn’t the same as doing for an asset with a long history, it can definitely provide some insights.
In this article, we will go over some higher time frames analysis on Bitcoin, gathering some data of what it did in the past, in order to have some context of what could be expected in the future, assuming that the history does not repeat, but it often rhymes.
Bitcoin Halving
Roughly every 4 years, the Bitcoin emissions are halved, the so called “Halving”. Back in 2009, miners could be rewarded 50 BTC each 10 minutes, where we currently stand (3 halvings later) that number dropped to 6.25 BTC / 10 min.
The halving is important, essentially because of how it directly affects the supply/demand balance of the asset, particularly the supply side.
If the supply drops while the demand remains the same or even drops relatively less, it is expected that the asset becomes more valuable (Scarcity/Supply/Demand rule).
Considering the importance of this event, we can look back at the price history to check how this event affected price and try to check for any potential correlation.
Time Analysis
A few interesting things that can be observed from this chart:
The 2 previous lows were formed between 18 and 17 months prior to the next halving. We’re currently approximately 17 months until the next halving (2024).
From the top until the next respective halving, starting from 2013, it took 32 and 29 months. Considering the November 2021 top it is currently 29 months until the 2024 halving.
Year-Over-Year Performance (YoY)
Looking back at the % gains after the halvings, we can clearly see the diminishing return as the asset matures.
As we can see from the data above, the performance decreases after each Halving, the so-called diminishing returns. It seems reasonable to expect that as the asset matures, the performance won’t be the same as it was early on in the life cycle.
Bitcoin Drawdown From Top to Bottom
Another metric that we can evaluate is the drawdown from previous tops that took place on the asset, 11/2013 and 12/2017.
Considering the last peak from 11/2021, the drawdown is ~-77.34%, in previous ones were -86.9% and -84.12%.
Projecting a -85% from the last peak, that would represent a value of ~ $10350 for Bitcoin.
Another characteristic that we can observe from this chart is that until now, none of the lows made after each halving were invalidated (higher lows each time).
Bitcoin 2-Year MA Multiplier
This indicator is essentially a very long period MA (730).
Historically, whenever the price was below it, those turned out to be nice accumulation regions for the long term. Even though it can remain below for an undefined period of time.
Conclusion
The intention of bringing up this data is not to try to predict or time a bottom/top for Bitcoin, that would be simply gambling, because there is not a 100% proven method for that.
The key point of analyzing past data is to give us some context and perspective as to if the present cycle is showing a different behavior from the previous ones and what we could expect, considering that this time will not be exactly the same but also not so much different.
Macro outlooks are often used by long term investors to decide when there is a good R/R to start accumulating.
More conservative participants still prefer to wait for an actual confirmation of a change in momentum before starting to build a position.
However, looking at the provided data, it shows that the risk to reward is definitely looking more attractive if compared to 2021 for example.
