Bitcoin Isn’t Dead, There Has Been Worse (BTC-USD)

Bitcoin with smartphone and white cross

24K-Production/iStock Editorial via Getty Images

If you’ve been watching the markets lately, you’ve seen the headlines of cryptocurrencies crashing as they compete with recession headlines. It’s like watching a fiery car crash; you just can’t look away. But the real story is the high-alert analysis ringing “the end of Bitcoin (BTC-USD)” (but just Bitcoin) bell and attributing it to rehashed reasons from the last time Bitcoin crashed. Like the previous few times, the calls for Bitcoin’s death didn’t miss their cue. But, of course, this is nothing new, and a simple walk through history and charts vindicates Bitcoin as much as the concept of calling the death of an asset while its worth remains $18,000.

Alarmist analysis doesn’t take into account history, charts, or catalysts. It’s a permabear attitude to attribute the same reasoning anytime something crashes, and with Bitcoin, this has been on full display over the last six or more years and has resurged once again. This alone should make you think it’s not dead.

But allow me to walk through how Bitcoin on a market level isn’t dead. Let’s start with the chart, move to the regulation and governmental side, and then I’ll circle back and wrap the article up with the chart one more time.

A History Lesson

This latest drop of 74.5% from recent highs isn’t far from the 71.4% drop from 2019’s highs to 2020’s crash or the 84% drop from December 2017’s highs to December 2018’s lows. So to say this is the death of Bitcoin because it falls to $18K is something I disagree with.

Bitcoin's chart over five years

Bitcoin’s Chart Over Five Years (stockcharts.com)

Do I expect Bitcoin to immediately about-face and head to $100K? No, not exactly.

But my point in drawing out the other big crashes in Bitcoin is to show it was likely more dead in 2018 than any other time in recent history. Sure, some are pointing to government risks and other external reasons for this time and this crash, but these overhangs have never left.

What’s clear is a significant drop in Bitcoin’s price does not render it dead. Crashes like this are not uncommon, as I demonstrated, and have provided massive opportunities to add to one’s holdings for huge returns. The most recent example of this was buying during the 2020 pandemic crash. If one bought even 20% higher than the bottom at $3,948 – making you buy at $4,737 – and sold $10,000 below the recent top of $69,000 (15% below), it returned 1,145% in just 20 months. Remember, this is not even catching the bottom or the top in any way, shape, or form.

And if one bought at $4,737 but never sold because they thought it was headed to $100K, they are still up 341% today. That’s better than any of the assets I can think of after the latest market bloodbath. It’s even better than Exxon Mobil (XOM) before its recent selloff. So even roundtripping Bitcoin still brings you out on top.

I understand this is all past performance and none of it is indicative of future results. I get that, and that’s the point of my bearish colleagues, so I’m not dismissing that. But coming out saying Bitcoin is dead after a 74% drop isn’t exactly…helpful.

Let’s move on to the latest external factors.

Worse Than A Ban In The Largest Country?

In October, I outlined how headlines and supposed catalysts aren’t factors in how Bitcoin reacts. It turned out to be one of my most popular articles I ever wrote on Seeking Alpha, much to my surprise, frankly. But you’re likely saying, “Well, that part about Bitcoin not responding to catalysts can’t be true. If governments ban it, then what? Bitcoin has to go down and likely go to zero.”

Well, let’s review.

China had threatened to ban Bitcoin exchanges and mining in general as early as 2017. Bitcoin was around $4,000 at the time. Then, when China followed through on those threats in June last year, Bitcoin was about $35,000. When it was all said in done, and China had ordered all things crypto banned, the coin was on its way to new highs at $69,000.

With the hash rate in China near zilch, the crypto was still notching new gains. A little counterintuitive, don’t you think?

The same goes for regulation.

Regulation is a bullish outcome for Bitcoin, not bearish. The reason is regulation always favors the incumbent players. Additionally, it will remove the questioning around “what ifs” and general uncertainty, and the market likes the removal of uncertainty. Regulation makes it harder for new entrants because of red tape and the higher capital requirements to comply with all regulations. Now, this is different from a company as Bitcoin is open-source – its design is public and isn’t controlled by any one entity. But it simply shifts the onus from execs of a company to the built-up development community to deal with those regulations – essentially confirming the network effect of the design and operation of Bitcoin.

But what bears really mean (whether they realize it or not) is regulation for exchanges, not for Bitcoin itself, is forthcoming. Bitcoin, the cryptocurrency, is what it is, and the technology is a fundamental leap forward in security and the use of cryptography in practice. What opponents, and even some proponents, want is regulation around the use of Bitcoin, and, therefore, this will limit the use of Bitcoin and thus its utility and popularity. I disagree. The regulation even toward exchanges will have the same outcome: favor the incumbents and solidify their standing in the market. The result is a confirmed market for trading and use of it.

The market is always smarter than the government. Left without regulation around Bitcoin, the crypto, allows competition to create a better coin. If a better, more secure coin comes along, it’s possible to upend the network effect of Bitcoin. But once regulation is in place, that free enterprise landscape is cliffed, and unless the competition can fly, they will reach the cliff and fall off, leaving Bitcoin the one soaring. Not the intended result of regulators, but cryptocurrency wouldn’t be the first case study on unintended consequences. Conversely, lack of regulation will make a better coin, either Bitcoin to a better state or an entirely different technology.

The Practicality Of Where Bitcoin May Go

Let’s bring it back to the chart to understand where this latest crash can lead. There are two mostly straightforward scenarios: Bitcoin breaches this latest support at 2017 highs and heads to 2019 highs around $13,800, or it finds support at 2017 highs and bases or reverses from here. Here’s the latest chart showing where it has reached:

Bitcoin support in 2017

stockcharts.com

After a monster run from 2020 lows, it’s not surprising to see it drop and test former resistance levels for support, similar to prior moves. The problem could come from the breach of the 2017 support, but a quick recovery above it. If this indicates this wasn’t tested successfully, Bitcoin could be looking at a further drop to 2019 highs.

However, if the crypto holds this level, a reversal into the next leg can begin. Many of these crashes have found quick reversals, but that doesn’t mean it will happen here. There could be months of sideways action before a move higher begins. The downside from $21,000 is about 34% to 2019 highs. Even with a dead cat bounce, the upside is around 33% to the last support level, which will be tested for resistance.

Bitcoin near term resistance

stockcharts.com

The risk-reward is about even at the current stage on a technical chart level due to the move to 2017 highs at ~$18,000. If a bounce continues from this area, the risk lessens, and the next crossroad is getting through the 50-day moving average, and then the potential resistance at $28,000. If those can be reclaimed, Bitcoin will likely continue higher, with potential support tests along the way.

“I’m Not Dead Yet!”

Overall, the claim Bitcoin is dead after looking at the five-year chart is incorrect, in my opinion. There were many more places Bitcoin should have died if it was going to. Now, is Bitcoin dead money for a bit? Perhaps – there’s a good argument to be made there. But dead? Nah, not because of a 74% drop and the continued threat of regulation or bans like the better part of the last decade. Regulations and government intervention have been selling points for crypto to move higher over the years, and haven’t killed them.

Accumulating Bitcoin around $20,000 isn’t a bad spot for dollar-cost averaging – all part of a balanced breakfast, I mean portfolio.

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