The Rising Bottom Hypothesis
TL;DR: with each new halving period, there exists a bull run that triggers a reset of the bottom price for that period, that is at least an order of magnitude higher than the previous period’s bottom. Effectively seeing the permanent vanishing of the previous period’s bottom.
Note: A lot of scrutiny is still required for this hypothesis to transition into a theory, at this point only time will tell.
It is no longer a niche notion amongst Bitcoin maximalists that Bitcoin still has quite a lot of value to be realized. There are even those who have various methods of determining whether it is currently being undervalued or overvalued.
Chief among those who seek to predict potential future prices are the traders and charters. Over the years they have managed to come up with various theories about potential future price trends. Some of these theories are a bit too superstitious or self-fulfilling, while some are based on rational presuppositions; at least empirically.
The aforementioned theories are born out of observations from trends in Bitcoin popularity like the Hype Cycle Theory, halving timings like the Halving Theory, miner Hash rates as in the Hashrate Theory, etc.
But we digress, all these theories still share a common theme; that is, to describe potential future price trends and or provide a narrative to inform one about the perfect time to buy into Bitcoin. In that light we proceed to present an observation we have coined “The Rising Bottom Hypothesis”, in which we have observed that;
with each new halving period, there exists a bull run that triggers a reset of the bottom price for that period, that is at least an order of magnitude higher than the previous period’s bottom.
Meaning, if the previous halving period bottom had a range within the $100 mark, for example, the next period will never see that bottom mark again after a certain bull run.
Bitcoin Price Action
In the times before Bitcoin amassed a price valuation of $1, it was merely a thing of fascination amongst a very niche group of people, primarily composed of cryptographers, cypherpunks and programmers. This is quite expected of any new technology; the slow transition from a fascination amongst a small group of interested parties to being a part of the mainstream conscience.
Though one could argue that Bitcoin still hasn’t seen full mass adoption yet, it is still however less arguable to claim it’s still in the phase of being a fascination amongst a few cryptographers and cypherpunks. With the current levels of interested parties in Bitcoin still steadily rising with some variance usually correlating with price trends, we are still seeing very large noticeable increases with each (new) halving period.
In a deliberate cautious decision to avoid any further divagation, we would leave out any analysis of price trends prior to the initial halving of 2012. This is for obvious reasons that have to do with the fact that the data available for the price action trends before 2012 are not as quantitatively or qualitatively insightful to the general analysis as the available data post 2012.
Price rallies
Within each halving period there exist periods of immense market exuberance and periods with evident price depressions, with the latter arising from the former’s departure. These periods are generally regarded as times of a bull market and bear market respectively. They are the universal signal that triggers entry positions for those willing to take advantage of dumping their holdings on victims of FOMO, or those aiming to enter Bitcoin at a more acceptable price level.
These rallies provide the opportunity to dump, enter or buy more bitcoin — to HODL — depending on one’s risk appetite. Though for obvious reasons it is preferable for one to buy the dip; enter the market during a bear market to maximize their potential future returns.
Halving periods and rallies
With each new period comes the potential reset of the current rally and positions of bitcoin holders both actual or potential.
Each new period provides an opportunity for a higher price discovery. This could be due to the core belief around price, in general, being a reflection of value. Each halving results in the slashing of the bitcoin minting supply rate by half, which continually makes it even more scarce. Since at least theoretically scarce items are more valuable, this tends to drive up the price, which naturally triggers higher interest in Bitcoin from onlookers that seek to get in on this scarce resource.
Analyzing BTC/USD price trends
In light of our analysis of BTC/USD price trends, we have denoted H0 as the period of the genesis halving and subsequent periods would naturally be Hn, where n is the halving period since the genesis. As such, we have so far experienced only two halving periods thus far; H0 and H1. These halving periods have been highlighted in the price chart above.
As one can observe from the chart above, there have been two noticeable bottom price resets in H1 alone. The bottom prices have been denoted as Bn, where n is the index count. As such there have been three major bottom prices B0, B1, and B2.
We can see that B0 was the residual bottom price from H0. This bottom was subsequently reset by the rally highlighted by the first green beam, seeing the reset of the bottom from its prior price point of below $1000 to between $1000 and $3000 (i.e B1).
However, the bull runs of late 2017 to early 2018 saw yet another bottom reset highlighted by the second green beam — B2 — which elevated the bottom just above $3,000 and below $4,000. This could potentially remain the last bottom for this period, and just goes to show that there can be multiple bottoms resets in any given period.
Effects of FOMO
Whenever a bull run is in full swing there will always be those who become even more eager to get in on the action. Unfortunately, they do usually get the shorter end of the stick and are used to further pump the price and increase existing coin holdings. Some runs are undoubtedly more vigorous in terms of price action, where you have active media coverage and general optimism around crypto that re-enforces further overly optimistic price valuations.
In each halving period, there is usually one or more such runs that seem to be the most difficult to time and are what you might call the FUD Wave (FW). These runs are the ones responsible for the immediate reset of the current halving period’s bottom, wiping out any chances of the previous halving period’s bottom being seen ever again. In doing so it does break the previous record for the top price of Bitcoin in general.
Investor sentiment
Some investors have concluded that the last bear run in any given halving period is likely to be their last chance at getting in on the action at a very attractive price level, before the coming bull runs of the next halving period.
As you might have already known, H3 is nearly upon us, and as such, it means the current price point would probably continue to be the most decent to get in on Bitcoin. One could say that this remains true for the prices in general at the end of each bear market in a halving period because that would likely be the last time you see that period’s bottom.
At this point, it seems every halving period (or ~4 years) there is an opportunity for investors to either wait for some bull run and cash out or more generally increase their bitcoin holdings at a somewhat depressed price point.
From the limited evidence we currently have, it does seem that the ending of each period or at least the period where the last bottom for that period has been reset — its last bear run — remains the last opportunity to buy into bitcoin before prices explode in the next few FWs.
Conclusion
At the moment the trend observed by this hypothesis still holds. However, it could potentially take a drastic shift at any later point in time.
“Making predictions about price action in the immediate to long-term future (post ~21 million minting) remains a hobby for the bored, an exercise for the money chasers and a career for the foolish”.
Thus, I have no desire to engage in this activity and merely aimed to present an observation — wholly dependent on currently available data — to make (potential) future inferences and highlight its effects.
Disclaimer
The information provided in this write up is not intended at all to constitute any form of financial or trading advice. It is provided purely for educational purposes. As such I am not liable for any losses financial or otherwise in the event of use as a trading guide.
Thanks to Don Crypto for his feedback on an early draft.
