It has been volatile time for bitcoin ever since its peak of $69k back in November last year. At present, we are trading at about a third of its value with bitcoin floating within the $22k to $24k range. With bitcoin having found support at the $20k levels, we are now generally seeing some strength return to the global crypto market cap.
While it may seem apparent that some form of bottoming could be forming due to “seller exhaustion”, I believe there may still be catalyst out there which may add further selling pressure to the crypto market. In this article, we will be exploring both the bull and bear cases for Bitcoin as we continue on into the second half of 2022.
Why is $20,000 such an important “zone” for Bitcoin?
I cannot stress the importance of $20,000 as a crucial physiological price point for Bitcoin as it is where traders have literally made it or ‘broke-it’ in the last 4 years.
Reference to the chart above where bitcoin previously touched $20k back in 2018 (Indicated in Red). Following that, bitcoin crashed to a low of $3500 representing an almost 80% drop in a year!
The next time bitcoin tested this crucial $20k level was back in December 2020 where upon breaking out past $20k, the rally simply went insane from there. (Indicated in Green)
At present, we are now back at this $20k level where at the very least, we are seeing the selling stop for now as buyers find their way back into the market. Its anyone’s guess which direction we’ll trade from here on however there are still catalysts ahead that traders are cautioning against.
Bear Case 1 – Mount Gox
The curious case of events surrounding Mount Gox are commonly referred to the Mt. Gox hack of 2011.
TLDR
Back in 2011, an exchange known at Mt. Gox based in Japan was responsible for almost 70% of bitcoin transactions. Long story short, they got hacked and many investors lost their money. Last November, Mt. Gox released a formal “rehabilitation plan” to return some of the lost funds to its investors. Details as follows,
137,000 BTC worth roughly $2.8 billion will soon be released into the market as funds lost to the Mt. Gox hack of 2011 and subsequent loss of 850,000 BTC worth around $17.8 billion at today’s price. In 2014 Mt. Gox reported that it had found 200,000 BTC, but those coins have been locked in litigation until now.
cryptoslate.com
At surface value, what we are looking at could be an event where once investors receive their bitcoin(s), they would simply dump it all into the market which is something which might very well happen as the hack took place almost 10 years ago. If you’ve been holding on to something with sole option to sell it only 10 years later, chances are you’ld want to close the position or at the very least, secure some profits.
In the event where ALL investors decide to secure ALL their profits, we are looking at a potential crash in bitcoins price. While the question remains as to what will happen, here are some reasons to help balance out the fear.
- Many investors sold the rights to their claims to other crypto funds. These funds, given the state of the market at present, may choose to cash out at another point in the future where market conditions are more favorable.
- 137,000 Bitcoins represent 8.8% of the total daily exchange value. SHOULD all be liquidated, would that be enough to bring the market down?
- Apart from BTC, creditors are being offered Cash or BCH or even a combination.
- Unknown payout schedule – It is not known if all the 137,000 bitcoins will be paid out in a single day? or even a single hour? As such, the likelihood of “everything” going down in one swift stroke remains highly unlikely.
Bear Case 2 – Lack of the “Celebrity” factor.
Let’s face it, to some extent, the momentum in cypto trading is still somewhat “validated” by celebrities. Be it paid or unpaid, celebrities have indeed touted cryptocurrencies to quite a large extent the past 2 years. Some familiar names include Matt Damon, Elon Musk, Snoop Dog etc.
At present bear market conditions, its no surprise that these celebrities have indeed gone quiet. Reference to Tesla’s latest earnings where they sold 75% of their bitcoin. Until we reach a point where we see such “FOMO” come back again, it is likely we’ll just have to snack on these memes for now.
Bear Case 3 – Actual Cost of Mining a Bitcoin
Bitcoin’s cost of production has dropped from about $24,000 at the start of June to around $13,000 now, which may be seen as a negative for pricing,
JPMorgan Chase & Co.
While the concept of “value” investing hasn’t quite taken off with Cryptocurrencies due to the lack of any cashflow or financials, some investors have turned to the cost of producing (mining) a single bitcoin as a reference to what its “true” value might be. To this end, a possible support level where we may retest next should things go south may be at this potential level where its value could be deemed as “fair”
Is there a bull case?
I’ll be upfront, I do think that at this point, it would seem that the bears are still in control given the inflationary environment that we are in. The bull cases are weak however investors may find a bottom should the following cases pick up more momentum/attention,
Bull Case 1 – Minor break in trend + Increase Volume
Not necessarily a reversal in trend, but at the very least we are seeing somewhat of a relief rally with the price action of bitcoin breaking out of its downward trend. At present, we are seeing it form a new trend supported by increased trading volume which is unlikely to be an indication that selling has stopped but rather an indication that selling pressure is weakening.
Bull Case 2 – Realised Losses
Let’s put it this way, if you closed your position and realized your losses, you’re out of the game and can no longer influence the market with any more selling pressure. All of us vested in crypto would be most familiar with events such as Luna, Celsius, 3 Arrows Capital etc. These are all negative for the industry however at some point the selling would stop.
Bagholders would literally “give-up” selling and accept their fate (either to hodl or close) and very naturally the first sign would be that of “value-investors” entering the market.
To this end, I haven’t quite seen any signs of this but I am indeed on the lookout. The recent comments from DBS CEO Piyush Gupta are indeed encouraging in times like this.
Are we at the bottom?
In my opinion, it is unlikely that we are at the bottom given how bearish the current outlook still looks. The first signs of a bottom would likely come with any reduction in inflation (CPI) and with that, any less-hawkish action from the Federal Reserve with regard to interest rates. Having said that, I do acknowledge that the bottom may not be that far away hence I nibbled when bitcoin touched $20k.
In terms of TA, we don’t need to look to deep into anything complicated. Simple indicators such as the formation of a golden cross or even the convergence of the 200 day MA against the price action would be sufficient to warrant consideration for most. Until then, it is likely that I will be on the lookout for more bullish reversal patterns rather than trying to pick bottoms.
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