Analyzing technical and macroeconomic facts and how you should prepare for what is to come.
Disclaimer: This article is only for education and entertainment purposes, and should not be treated as financial advice.
Bitcoin has experienced significant price drops recently. But the worst is still ahead of us. This article will analyze why and how the Bitcoin price will develop in the coming months and what you can do to be prepared.
The Technical Point Of View — A Case For BTC Going To $20.000?
Let’s start from a technical point of view. As you can see in the following chart (log scale), Bitcoin’s long-term trend is still intact. After slightly breaking below, BTC price is now holding barely above the trend line.
As was shown in March 2020, even a stronger slump below does not necessarily have to be a sign of major problems. Should a bigger crash happen, much will depend on how deep the journey goes and how quickly the bounce-back would occur.
What about a sudden upwards move? While we can never rule it out, I think that for the time being the fundamentals for a sustained move higher are simply not here. More on that in a moment.
Sticking with the bad scenario, how much downside can we expect when we look at purely technical facts?
If you ask 100 technical analysts in crypto about how low Bitcoin can go this time, you will get 99 different answers. However, the former ATH from 2017/2018 around 15–20k US dollars seems to be an acceptable low point for many.
This assumption is also supported by the fact that there are no other significant supporting lines left from the current level of around 30k down to 20k.
If we are really going to see these price levels is — of course — impossible to predict. But while charts surely have their use, looking into what’s happening in the real world gives us more clues about what to expect.
The Macroeconomic View — The Worst Is Still Ahead
From a macroeconomic point of view, things look very bad. We are going into a major global recession. Let’s look at what’s happening out there.
Due to COVID-19, we are still experiencing broken supply chains. The situation is further aggravated as China consistently shuts down factories, ports, and other elements important to the global economy as part of its ‘Zero COVID’ strategy. It is not clear when a lot of businesses can return to their regular mode of operations.
The war between Russia and Ukraine
As I discussed in this previous article, the war in Eastern Europe accelerates the global economic downturn.
The Ukraine War Triggers The Next Recession
It Could Also Set Off A Global Famine. Time To Stock Up On Food And Other Things.
The effects are severe. We face a worsening global energy crisis and on top of that signs are multiplying that we will also have to deal with a global food crisis. That’s because Ukraine and Russia account for a significant part of global wheat production. Western sanctions against Russia will also lead to fertilizer shortages in many places. As countries around the globe scramble to secure food and energy, prices will continue to increase throughout 2022.
To summarize, we are heading straight into stagflation — a stagnating or shrinking economy while prices for commodities rise. Not good.
Central bank interest rates
As prices for necessities continue to surge, central banks around the world will continue to hike up interest rates to bring back inflation to acceptable levels. This, together with the other problems mentioned, will continue to hurt stock markets. This in turn will negatively affect crypto markets. From experience, we know that Bitcoin price is strongly correlated with the US stock market. Recent news has reported that Bitcoin price and NASDAQ correlation has reached 0.8.
How low can stock markets go?
Again, all we can do here is make educated guesses. But one thing that is for sure is that the financial economy and the real economy have developed a huge gap over the last decade. Until now that gap was supported by a lot of cheap central bank money. When that money stream is turned off, the financial markets contract. Some believe that we are about to see a bigger crash than during the great financial crisis of 2008. A contraction of the S&P 500 of 50% seems to be possible. So far it only lost about 20%. Still a lot of room left to go down.
The big question is, will Bitcoin follow? And if so, to what extent?
Finding The Bottom
Eventually, stock and crypto markets will reach their low points. My guess would be that this happens somewhere in the early to middle of 2023. That is because factors such as the energy crisis and the food crisis will not peak until late 2022 when shortages become most apparent. At the same time, all of these problems will not go away. So we might find ourselves in a strange situation where markets get hammered down while prices for commodities soar — the aforementioned stagflation. With inflation not going anywhere, I believe that Bitcoin price is bound to increase significantly after the crash.
What Should You Do During This Bear Market?
As the chart above shows, investing in Bitcoin is a long-term undertaking (3–5 years). This gives us the opportunity to accumulate periodically. I believe that the coming months will be a good time to accumulate established cryptos such as Bitcoin and Ethereum. But as described above, from where we are now there is a big chance for prices to go much lower. Keep calm and wait for the right time. Also, divide your investment funds to accumulate whenever there is a price dip.
How to identify an opportunity to buy in? We all know the famous saying “be fearful when others have greed, be greedy when others have fear.” We can use the Bitcoin Fear and Greed Index for reference when adding more Bitcoin to our portfolio: when the index is below 10, it could be a good point to add.
Another way to find a good time for buying in is to look at the volume. When the volume is high, it often is an indicator that the market is at a temporary top or bottom.
Looking at the Net Unrealized Profit/Loss (NUPL) chart. If the NUPL line is close to or in the capitulation area, then it is time to accumulate.
Another useful chart that reflects market psychology is the 1-year plus HODL wave. When 1-year plus HODL increases, that could indicate investors are accumulating.
For more methods and tools, please refer to my earlier article about Bitcoin indicators:
8 Free Bitcoin Indicators You Should Use
Great Tools For Investors When Prices Are Volatile
Another opportunity during the bear market is to buy coins at a discount price and start to stake and earn rewards. For example, it is easy to stake DOT on your own Ledger.
Guide: How To Stake DOT On Your Ledger
New Series: Make Money In Your Sleep — Part 1
Last but not least, the bear market is a great opportunity to learn and accumulate knowledge so that you be prepared for the next bull market.