Nearly two months ago, here on Steemit I had written a couple of articles pointing out that the trading analysts were leading people wrong by forecasting bullish trends and a recovery of bitcoin values when it had apparently rebounded from its initial drop to around $6,000.
Feb 12 2018: There is Little Chance Bitcoins can Sustain any Real Recovery Until This Fundamental Metric Begins to Turn Upwards Again
https://steemit.com/bitcoins/@kenraphael/there-is-little-chance-bitcoins-can-sustain-any-real-recovery-until-this-fundamental-metric-begins-to-turn-upwards-again
Feb 17 2018: Bitcoin Has Not Yet Fundamentally Recovered At This Time – A Mathematical Case
https://steemit.com/bitcoin/@kenraphael/bitcoins-have-not-yet-fundamentally-recovered-at-this-time-a-mathematical-case
A mathematical modeling of the fundamental metrices showed that such a recovery was virtually mathematically unlikely. It would take an enormous printing of fake demand (if indeed tether or some other entity engaged in that - a mathematical feasibility based on the numbers) to prop up that kind of recovery.
The fact is that mathematical modeling tools remains probably the most accurate measure of the rough trend of a market valuation of an asset. And cryptocurrencies with the wealth of data available publicly on the blockchain presents the a good number of metrices to perform such analysis.
How Many Bull flags, Reverse Head & Shoulders, Wedges, And Breakouts Have You Endured the Past Two Months?
There is nothing wrong with bitcoins going through several month long correction. Overall, its current price compared to six months ago still beats most assets on the stock market. But patience was required. And following the wrong prognostications of trading analysts does not help with that.
You can compute the gains you would have made following the call from this blog in February rather than getting in at S11K, $10K, or $9k by listening to social media trading analysts that draw lines without any sound basis, and label it science.
What Do the Fundamental Metrices Currently Show?
In order to tell when the bear market would be over, let's go back to the single most correlating metric - the daily unique user address growth rate:
Source: https://blockchain.info/charts/n-unique-addresses
We notice that the value remains low even today, and with it the market price. However, at this time it also appears to have stabilized and no longer falling rapidly as it was doing earlier in the year. (When this was presented in one the above blogs, there was a comment that the user adoption rate does not need to grow for prices to grow. That would be mathematically unsustainable in the long term because only demand can prop up the price of any asset long term - for a virtually fixed rate supply asset like bitcoins. And unless demand is artificially printed, when you see dropping demand it actually does not take much modeling to face mathematical reality o prices following soon.) Below is the market price in comparison to the above daily new user addresses for the same period.
When will the Downturn End?
The DUA seems to be leveling off slowly. In fact, today's chart showed a slight week on week uptick - the first clear WOW uptick since early February. Based on this metric, it would be surprising to see values fall to the 3,000 levels as some have now started suggesting. (Possibly a major event such as SEC action on tethers or a major exchange crash or hack could move things to such levels now looking at the stable leveling of the DUA.) Other fundamental metrices such as network fees and confirmation time also remain low.
So some form of slow recovery could be around the corner. However, there are few things that could speed up a return to late 2017 DUA growth rates. One is if newly released technology such as Lightning will begin to demonstrate really cheap transfer rates and Bitcoins begins to more rapidly take over functions that Western Union and Paypal used to perform; or demonstrate growing use cases. The other is if new tether printing can drive prices up and draft new user growth along with it. But apparently the rate of printing of tethers seems to have slowed to nearly stopped for some unrevealed reason since Jan 2017 (as seen on coinmarketcap.com.) And the recent activism of the SEC in arresting questionable practices in the cryptocurrency area may further dampen the enthusiasm to print demand; if some of that was previously going on. The success of the technology would be the more welcome and sustainable path to growth, but will likely take several months to unfold.
The daily unique user address growth rate can be followed at the link already presented above. When that begins to grow again then the asset price would likely follow, just like it has done for the prior nine years, and in accordance with fundamental economic principles. However, timing the precise bottom might not be feasible. For instance, it would be preferable to maybe get in at say $7,000 for a $6,000 bottom; or at $6,000 for a $5,000 bottom; after establishing that real growth has returned to the market, rather than to keep guessing when the chart readers will eventually make a correct call. It may also be pointed out that ultimately, there is not much comparative leverage between getting in at $4,000, $5,000, or $6,000 when it gets to a new ATH (above 20K.) In short, the risk of waiting for lower entry points might outweigh the gains of getting in at those lower levels at this point. Watch this blog as well, as the evidence of real growth will be called for what it is, having no vested interest either way in making false bullish calls.
Other Articles by the Author
Mar 17 2018: Lightning Was Released This Week – What Will be the Impact for the Bitcoin Network and the Cryptocurrency Market?
https://steemit.com/bitcoin/@kenraphael/lightning-was-released-today-what-will-be-the-impact-for-the-bitcoin-network-and-the-cryptocurrency-market
Mar 16 2018: Social Media Trading Analysts Are Likely Mostly Doing a Disservice to the Blockchain Community
https://steemit.com/bitcoin/@kenraphael/social-media-trading-analysts-are-likely-mostly-doing-a-disservice-to-the-blockchain-community
Mar 09 2018: Blockchain Technology Potential (Series 1) – A Review of a Recent PAYPAL CryptoCurrency Patent Filing and What It Means for the Future of the Technology
https://steemit.com/bitcoin/@kenraphael/blockchain-technology-potential-series-1-a-review-of-a-recent-paypal-cryptocurrency-patent-filing-and-what-it-means-for-the
Mar 07 2018: Audit the Teths – A Macro Case for Why Tethers Need to be Audited for Confidence to Return to the Market
https://steemit.com/bitcoin/@kenraphael/audit-the-teths-a-macro-case-for-why-tethers-need-to-be-audited-for-confidence-to-return-to-the-market
Feb 24 2018: A Review of a Few Fundamental Metrices that Drive Bitcoin Value and What They Currently Indicate
https://steemit.com/bitcoin/@kenraphael/a-review-of-a-few-fundamental-metrices-that-drive-bitcoin-value-and-what-they-currently-indicate
Feb 17 2018: Bitcoin Has Not Yet Fundamentally Recovered At This Time – A Mathematical Case
https://steemit.com/bitcoin/@kenraphael/bitcoins-have-not-yet-fundamentally-recovered-at-this-time-a-mathematical-case
Feb 12 2018: There is Little Chance Bitcoins can Sustain any Real Recovery Until This Fundamental Metric Begins to Turn Upwards Again
https://steemit.com/bitcoins/@kenraphael/there-is-little-chance-bitcoins-can-sustain-any-real-recovery-until-this-fundamental-metric-begins-to-turn-upwards-again
Feb 09 2018: This Single Metric Seems to Correlate More with CryptoAsset Values The Past Two Weeks Than Most Predictive Methods
https://steemit.com/cryptocurrencies/@kenraphael/this-single-metric-seems-to-correlate-more-with-cryptoasset-values-the-past-two-weeks-than-most-predictive-methods
About the Author
Ken has a doctorate in Engineering, and a master’s in Computer Aided Engineering, An IT professional, programmer and published researcher with over thirty publications in various fields of technology, including several peer reviewed journals and publications.
Legal Disclaimer: I am not a financial adviser and this is not financial advice. The information provided in this post and any other posts that I make and any accompanying material is for informational and educational purposes only. It should not be considered financial or investment advice at all. You should consult with a financial or investment professional to determine what may be best for your individual needs.
This is only opinion. It is not advice nor recommendation to either buy or sell anything! It's only meant for use as informative, educational, or entertainment purposes.
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