Recent BTC price action begs question – How low can it go?

Crypto investors are an anxious lot these days. I am not talking about “Hodlers”, the ones that are in the crypto space for the long haul and would never dream of selling their tokens. No, I am speaking to the minions that raced over from other investment arenas to try their hands at the latest and greatest and most volatile asset class of all time. Mr. Market, however, has not been kind for the past year. Crypto values have plummeted, losing from 80% to 90% to even more in an extended bearish trend.

The industry had survived this “Crypto Winter”, or so the masses thought, until recent price action raised anxiety levels beyond all reason. Did an Arctic blast suddenly put a new coat of ice on everything? Has Crypto Winter turned “nuclear”? Just when things began to look positive and a thaw was in progress, chaos struck once more. Bitcoin, the exalted leader with a 53.4% market share, had finally climbed back over the $3,600 support level, but then decidedly dipped below $3,500 to establish new lows for the year, lows that had not been seen since December, and all this action for no apparent reason.

The Christmas rally had been a nice gift, but historical records show that January has been a cruel month for cryptos. Bitcoin has recorded a negative return in each of the last five years during January. The only good spin that can be put on this track record is that 2019 was only down 7%, a bit below the average loss of 16%. For those that take these kinds of anecdotal return patterns to heart, February is just the opposite. Five of the last seven years have posted positive results, and there currently is a four-year winning streak, averaging 17% a year for those four periods.

The prospects for February might be better than you think, if you accept the prognostications that Technical Analysis (TA) can provide. The crypto industry is still in its infancy, but that fact does not deter the analytical community from trying to apply traditional TA to crypto price behavior. The “Falling Wedge” in the chart above is a case in point. The converging triangle would normally indicate that a breakout is imminent. In the stock world, the odds favoring a breakout in the same direction as the previous trend that entered the “converging” phase. In this case, TA suggests a bullish reversal.

What are the prevailing opinions of “those in the know”?

Opinions about Bitcoin and its altcoin brethren vary across the map. In fact, you could find several significant individuals that have come out strongly on both sides of the issue. The most famous “Dark Side” guy has to be Jamie Dimon, the CEO of JP Morgan Chase, who has repeatedly bashed Bitcoin, calling it a fraud, a scam, and reminiscent of “Tulip Mania”. Reporters have teased him to the point that he refuses to talk about it anymore, having regretted what he had said. He is, however, a big believer in blockchain technology, and he has said that Bitcoin could go to $100,000, then to zero – “It will end badly,” his very words.

And then we have Jack Dorsey, the CEO of both Twitter and Square, Inc., a billionaire in his own right, and a staunch supporter of Bitcoin and blockchain technology. He is more optimistic for the long term, believing that: “Bitcoin has the potential to become the world’s single currency in ten years… We’d love to see something become global currency. It enables more access, it allows us to serve more people and allows us to move faster around the world.” He puts no price point, however, on such success.

Celebrities aside, the key unanswered question is, “How low can Bitcoin go before a true bottom arises?” Opinions here also hit both ends of a “low” spectrum. Here are a few examples:

• JP Morgan, forever pessimistic and in line with Mr. Dimon, has stated that, “Bitcoin would dump to $1,250 if this bear market drags out any longer.”
• Murad Mahmudov, prominent analyst and trader whose last eight predictions have been on the money, recently predicted Bitcoin prices: “A wick down to 1700 – 1850 area to quickly return and settle in the 2200 – 2400 area.”
• Su Zhu, CEO of Three Arrows Capital, said that, “Big buy walls in the low $3,000 region will prevent the dominant cryptocurrency from plunging to $2,000.”
• Danny Les, former hedge fund manager and investor, stated that, “I actually think the closer we get to $2k, the more buyers lie in wait. I legitimately believe what my good friend David Belle thinks, the floor will be around the $1.5k-$2k area and at that point a lot of money will be waiting to enter the arena.”
• According to a survey taken by Martin Young, a reporter with NewsBTC: “Many expect a drop below $3,000 in the coming weeks and a number of observers and analysts have predicted prices as low as $2,000. Other analysts have called a $2,500 bottom by using fractals to measure repeating chart patterns.”
• With regards to a bottom forming, Vinny Lingham, a South African Internet entrepreneur who is the co-founder & CEO of Civic, an identity protection and management startup, tweeted his thoughts that were widely circulated: “If we break below $3,000 for bitcoin, crypto winter will become crypto nuclear winter. Bitcoin bear markets don’t end when the market indicates that there is a bottom. They typically end when the market indicates that there is no bottom.”
• Willy Woo, the creator of Woobull.com, spoke to the timing of a turnaround: “Putting together the blockchain view, I suspect the timing for a bottom may be around Q2 2019. After that we start the true accumulation band, only after that, do we start a long grind upwards.”

To sum up an answer for “Are we there yet?”, the general consensus seems to be that we have a way to go, a good bit lower than the prevailing BTC price at the moment. BTC closed today at $3,423, but there could be as much as 64% “fluff” still remaining, if you accept JP Morgan’s pessimistic bottom forecast. Street wisdom contends that a proper bottom will not have truly formed until Bitcoin rises above key support levels, which are generally pegged at $4,000 and also at $5,000.

But what about the positive developments on the horizon?

Regardless of the gloomy forecasts from industry insiders, Bitcoin believers are confident that a number of initiatives will bear fruit in the months ahead and begin to open the floodgates for institutional players to come onboard the crypto train. The Bakkt exchange is to trade Bitcoin futures and settle in them, as well, not with cash as current processes do at the CME and the CBOE. Once institutional players are confident that an effective infrastructure is in place, then the presumption is that interest will pick up.

Fidelity Investments and the Nasdaq are also building infrastructure to meet the demands of their institutional clients, too. Volume will be the key ingredient to enable change on another front – the approval by the SEC of a license application for a Bitcoin ETF, which by necessity must deal in futures contracts and correlate well with various crypto exchanges. Until then, the potential for price manipulation will stand in the way.

Per Danny Les again: “If Fidelity Bitcoin custody launches in March, it will likely not have an immediate impact on price, and the same could be said for Bakkt and Nasdaq. Rather, it will allow investors to be more confident in the cryptocurrency sector and the asset class, which may lead investors to establish orders in a low enough range. All of this is positive news for what is clearly an emerging asset. If anything I’m more concerned that it’s taken so long for these products/services to be offered.”

At the end of the day, the crypto industry needs to prove itself in order to attract large investors back to the table. Over the past year, average transaction sizes have dropped from $5,000, at the end of the big run up, down to $130, a clear indication that Big Money has withdrawn to the sidelines to wait for good reasons to jump back into the market.

What will bring them back? According to Vinny Lingham once more: “The reality is that crypto needs real adoption and use cases. Until we have that we’re not going to have another bubble. The speculative mania is over. People want real numbers and usage and transaction volumes.”