Since our last newsletter 3 weeks ago, the price of Bitcoin has continued to range in a similar area as Bitcoin tries to form a bottom in price structure.
As long as traditional markets continue to struggle there continues to be a risk that Bitcoin trends down with them.
However, I continue to believe that the market will soon switch from selling traditional ‘risk’ assets such as Bitcoin in a risk-off environment to instead realizing that much of the risk in fact lies with governments and their currencies. That will be bullish for Bitcoin. We are seeing glimpses of this already with market concerns over the UK government. During such turbulence Bitcoin continues to hold the zone A level of support we highlighted in last month's newsletter:
Figure 1: Initial area of support at zone ‘A’ continues to hold for Bitcoin.
Figure 2: Fear & Greed Index shows most participants continue to be extremely fearful.
It is worth noting that major cycle lows are often formed when the market is certain that lower prices must be reached. When the majority of the market believes that price must go lower, price then reverses to the upside away from the bear market lows.
That is why indicators on LookIntoBitcoin are so valuable, as they allow the strategic investor to step away from the panicking market herd, and see the bigger picture.
NUPL to the rescue
Net Unrealized Profit/Loss (NUPL) is a very useful tool as it shows market sentiment using actual onchain transaction data. By subtracting Realized Cap by Market Cap we are able to see the extent to which the market is holding paper profits or losses.
When there are sustained periods of paper losses, we see major cycle lows being formed. As that happens, many participants capitulate as they feel disillusioned and quit the market - at the worst possible time!
Fig 3: NUPL has been in Capitulation territory for 4 months now.
We have been in and around such a period for 4 months now. There is no magic formula or crystal ball that tells us exactly how long we will be in this Capitulation zone, but based on previous cycles, we are already a good way through it.
Buying Bitcoin around these levels while NUPL is in the Capitulation zone has historically proven to be an excellent risk : reward opportunity for the long-term strategic investor.
Is Stock To Flow (S2F) broken?
As we are deep into the bear market we are seeing price deviate far away from the famous (or infamous depending on your personal take!) stock to flow line.
The model variance tool at the bottom of the chart highlights that price has only ever been this far below the stock to flow line once before. That occurred in the first-ever bear market for Bitcoin back in November 2011:
Figure 4: S2F indicator is currently being pushed to its historical limits as shown by the 1.19 variance score.
So, despite straying far away from the intended path of the stock to flow line, there is actually historical precedence of such price action with this indicator.
But all this stress and questioning makes the more casual market participants believe that "this time is different" and that Bitcoin will in fact fail. That tends to be the overriding sentiment we look for to identify when we are at or around the major cycle lows before Bitcoin then trends back up again.
$BTC grinding just above onchain pricing models
We continue to see confluence with many indicators, all highlighting that Bitcoin is close to bottoming - if it has not already bottomed.
An update on two models specifically designed to highlight cycle lows for Bitcoin:
CVDD (cumulative value days destroyed): $16,775
Balanced Price: $15,940
Fig 5: CVDD and Balanced Price are now plateauing as we have seen in previous bear markets.
For now, the price of Bitcoin remains extremely close to both CVDD and Balanced Price.
In fact, price did come within $150 of Balanced Price on the capitulation wick of June 18th. I do believe there is a reasonable possibility that could have been the low for $BTC this cycle.
Though with Bitcoin still being closely correlated with weak-looking traditional markets we will only know in hindsight where the exact bottom formed. This is why I believe steady accumulation around these levels continues to be the strongest strategy for strategic investors.
Working through the cycle
Finally, the amount of TIME that Bitcoin has spent through its natural cycle is also an important component to consider.
We are now more than halfway through Bitcoin’s current halving schedule. Overlaying Bitcoin’s cycles on top of each other provides valuable context when exploring this bear market:
Figure 6: Bitcoin market cycles since halving dates overlaid on top of each other. Source: decentrader.com
It is not surprising to see that the percentage gain has decreased with each cycle given the overall market cap increase each time. It is harder to generate such large percentage gains on an overall larger asset.
Regardless of overall gains though, the amount of time spent carving out a bear market is so far quite comparable. In the 2013 cycle, the bear market low came 779 days after its halving. In the 2017 cycle, it was 891 days.
We are currently 886 days through the current halving cycle.
So whether we have already bottomed or not this cycle, we are now likely a good way through the bear market from a time perspective.
Food for thought as many participants quit and will likely return when the price of Bitcoin is much higher! Accumulation now and over the coming months has the potential to produce outsized returns in the future for those who stay the course in this market.
Take care and speak again soon,
Founder of Look Into Bitcoin.
DISCLAIMER Nothing within this letter should be misconstrued as financial advice. All information is for educational purposes only. Please read the Disclaimer section on the website for further details.