The bears are back in charge after some time of bullishness and it is very possible that we will make another dip, although a sudden rise I can happen any moment too. In the case that the bear market rages on I think that it is very likely that the price will bottom near or above 4500. Firstly because the relative price is then lower than ever and secondly because I think the air is then out of the alt coin bubble.
I don’t say that BTC will bottom at 4500, my point is that I don’t expect it to go lower
This floor will only be there when no huge disasters appear. When the security of the Bitcoin blockchain itself is broken or the system crashes the floor will be 0. However, the chance for this to happen is extremely small.
The relative Bitcoin price
The relative Bitcoin price can be measured by using the Mayer Multiple. This multiple can be calculated by dividing the bitcoin price by the 200 day moving average and is also used in my diversification protocol to decide whether Bitcoin is overvalued or undervalued. The lower the multiple the cheaper Bitcoin relatively is. Today the multiple is 0.59 and this is very undervalued already.
When the Bitcoin price tanks further to 4500 the multiple will be around 0.45 and this is the lowest relative price that Bitcoin has ever seen. In the entire history of Bitcoin the relative price was this low for only 4 days! When this level is reached the upwards pressure will be huge and a strong bounce is very likely. Especially with the extremely positive fundamentals it doesn’t make sense that the relative Bitcoin price goes lower than the ultimate low of previous bear markets where the fundamentals were negative.
As you can see: The multiple has only been between 0.4 and 0.5 four days or 0.21% of the entire Bitcoin history!
The air is out of the bubble
There are multiple ideas about what the reason of the previous bear market was, but it is obvious that alt coins were in a gigantic bubble. I think this bear market is fully caused by mall investment in useless alt coins and that the fundamentally strong Bitcoin is pulled down by the overall negative sentiment of the popping bubble. I think it is fair to expect that the bear market is over when all the air is out and I estimate that this is around a Bitcoin price of 4500.
In the bubble alt coins without any use case were skyrocketing and managed to become a billion dollar asset in no time. I have never believed that Bitcoin was overvalued during the run to 20k because I think a market cap of many trillions is very possible in the future, but the extreme valuations of alts scared the hell out of me.
To measure the bubble I think Ripple (XRP) is the perfect coin to look at because it is one of the bigger coins with a high market price but no value. Ripple is centralised, the supply is very uncertain, the tokens don’t give any rights on the actual network and real adoption is not likely. Actually I think it shouldn’t even be listed between the cryptocurrencies.
This fundamental view is supported by the chart. Ripple had 2 bubbles in the past and the last phase of the 3rd bubble is underway as we speak. The remarkable point is that Ripple dropped down to the same level as were the bubble started while cryptocurrencies that are useful always end up higher after the crash than where they were before the bubble.
I think Ripple will end up at the same price as before the bubble again and since all the crypto’s are heavily correlated I expect the rest to bottom at the same moment. This would bring the price of Ripple to 27 cent and that would be a drop of just less than 50% from now.
Since alt coins and especially Ripple are dropping faster than Bitcoin and it looks like this difference is increasing over time because BTC is fundamentally doing extremely well and alt coins will experience more headwinds in the months and years to come, I expect Bitcoin to drop only half of what Ripple does and thus maximal around 25% from now. This will lead to a floor of 4500.
Ripple crashed to pre-bubble levels during the first and second bubble
I think it is likely that Ripple will crash back to pre-bubble levels again and that is around 27 cent
Conclusion:
I think that around a Bitcoin price of 4500 all the air is out of the bubble and that a relative price lower than this is very unreasonable because it never happened in the past. Investors should buy in big when an extreme undervaluation like that appears and useless alts like Ripple would be back where they started before the hype and thus be kind of fair valued (fair value is 0 in my opinion but we can’t expect the market to figure that out that soon). This creates a strong floor in my opinion.
Disclaimer
This is no financial advice, just my view on the market.
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