2022–2023: Bitcoin to 4k?
On April 30th, I published an article, 20k Price Prediction for Bitcoin in 2022, stating my Bulls and Bears thesis for the 2022 Bitcoin (BTC) price target. Well, the Bitcoin house of cards has fallen faster than I anticipated.
Currently, Bitcoin is in another price consolidation period, holding ground at 20k. However, is this the absolute bottom for Bitcoin? In this article, I will attempt to forecast Bitcoin’s all-time low (ATL) using a data-driven approach by analyzing:
· Bitcoin halving
· Terra Luna ripple effect
· Recession
· Bitcoin price action
Bitcoin halving
Bitcoin is designed with a finite supply of 21 million, with an initial block reward (payout to the miners) of 50 BTC that will be cut in half after every 210,000 blocks are mined, hence the term “halving.”
Each Bitcoin block should take about 10 minutes to mine. The mining algorithm will self-adjust its mining difficulty according to the miners’ mining speed. For example, it will increase the mining complexity if miners take less than 10 mins to mine a block or decrease the complexity of the mining if the miners take too long to mine. Taking the self-adjusting mechanism into consideration, Bitcoin halving should occur approximately every 4 years.
In theory, bitcoin halving reinforced its scarcity, and Bitcoin price action during and after the halving should reflect the market demand for its scarcity. Thus, it is worth looking into the halving impact on Bitcoin price.
Refer to table 2 for the historical Bitcoin halving impact on price. 3 Bitcoin halving have taken place since its inception; First halving happened in November 2012, the second halving took place in July 2016, and the latest halving took place in May 2020.
From table 2, we know :
· On average, it took about 1–1.5 years for ATH after halving
· On average, it took about 1 year to bottom (ATL) from ATH
· On average, ATL is approximately 15.65% of ATH
Extrapolate on what we have observed so far,
Potential ATL of BTC after 2020 halving = $65,567 * 15.655% = $10,577
Potential bottom timeline = end of 2022 to early 2023
Terra Luna and Terra UST aftershock
In May, I wrote an article, Stablecoin Unstable?-Terra death trap, on the collapse of Terra’s algorithmic stablecoin- UST. Terra 1.0 collapse not only brought Bitcoin along for a ride but dragged Celsius, 3AC, and maybe many more DeFi platforms for a crash slop in a pot.
From table 3, we know:
· On average, it took less than a week for the crash to stabilize
· On average, the BTC crash low is about 62.64% of the BTC price right before the crash
Potential BTC low in DeFi crash = $20,000 * % 62.644 = $12,529
Note: Depending on how Bitcoin is entrenched in the DeFi platforms, an imminent platform collapse:
· Might not bring about a price crash in Bitcoin
· Might be more profound than expected
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Recession-proof?
Bitcoin was conceived after the financial meltdown of 2008. Bitcoin, by far, has survived several bear markets, but it has yet to live through a recession.
Federal Reserve has recently ditched the “inflation is transitory” narrative and began to hike interest rates to combat inflation. This is commonly known as “sucking money out of the economy,” which triggers selling in the stock market. Growth stocks and the crypto market have been hit hard by this. Bitcoin, the grandfather of all cryptos, isn’t spared as well.
The recent market sell-off shared many similarities to the 2000s dot-com bubble. Amazon is often used as a shining example to calm the investors by looking at the grand scheme of things since Amazon (in the 2000s) and Bitcoin shared similar characteristics such as:
· Being a new kid on the block
· It is a relatively new technology
· High valuation
I will artificially plug Amazon dot-com crash data on Bitcoin to forecast its recession bottom if we ever encounter one. During the dot-com era, Amazon:
· ATH = $113
· Crash low = $5.51
· 95.12% drop in value, or 4.88% of ATH
Applying the Amazon dot-com crash data on Bitcoin ATH, we got
Potential BTC recession low = $67K * 4.88% = $3,267
Bitcoin price action
In this final part, we will tie all the analysis back to its price action, using support lines as our guide to gain further insight.
From table 4:
· Bitcoin price action support 2 is in line with potential Bitcoin halving ATL and BTC low if the DeFi platform crashes
· Bitcoin price action support 3 is in line with a 95% drop from Bitcoin ATH if a recession hits
Will Bitcoin hit 4k?
Under a typical Bitcoin halving scenario, there is a high probability of 10k Bitcoin ATL. However, I would like to argue that it is different this time. We live in an environment where the world is bombarded with not one but a couple of black swan events such as Covid19, Russian Ukraine war, high inflation, interest rate hike, and maybe more. To rub salt in the wound, pundits are getting vocal in raising their concern over the increase in the likelihood of an impending recession.
Bitcoin is deemed a risky investment, and no one has yet figured out its intrinsic value. It has found no solace in this uncertain environment as risk and uncertainties don’t rhyme well together. Thus, it is hard to determine the right price for its ATL. However, there is a high chance of Bitcoin crashing down to 4k if you factor in all the variability and might stabilize between support 2 and support 3.
Disclaimer: The information contained in this article is not legal or investment advice. This represents my personal views and, as always, Do Your Own Research.
Please let me know if you have any questions or if there is anything you would like me to write in general; leave a comment below. Thanks for reading, and I hope you enjoyed the article.
