Bitcoin and Ethereum tank … is this time different? … two price paths bitcoin could take … reasons for optimism

The crypto collapse over the weekend was spectacular.

Bitcoin plunged from its prior trading range of around $30,000 down to $20,000 – a 33% collapse – then kept falling.

It eventually hit a low of $17,708, a price not seen since 2020.

The Ethereum meltdown was even more amazing.

In recent weeks, Ethereum had been trying to hold a level between $1,800 and $2,000.

Around mid-month, it began sliding, culminating in a triple-digit price over the weekend.

Ethereum hit $896 – roughly a 55% haircut from only a few weeks ago.

Big-picture, since their respective highs last November, bitcoin is down 68% while Ethereum has lost 75%. And these losses include the small rally over the past two days that’s pushed bitcoin back to about $21,600 and Ethereum to $1,187 as I write.

This degree of carnage rattles the nerves of even the most steadfast investor, increasing the risk of selling out of fear, which potentially could lock in heavy losses.

Given this, today, let’s do our best to analyze this meltdown with our heads, not our hearts, while using history as a guide.

***Bitcoin is repeating its multi-year boom/bust pattern

For historical perspective, let’s turn to crypto expert Luke Lango of Ultimate Crypto and his update from this past Saturday:

Bitcoin does this “thing” every few years. It booms. It crashes. Then it bottoms. And it creates the best investment opportunities in the history of the financial markets.

In January 2015, Bitcoin crashes to $170. A year later, it’s up 170%. Two years later, it’s up more than 500%. Three years later, it’s up more than 10,000%.

In December 2018: Bitcoin crashes to $3,000. A year later, it’s up 150%. Two years later, it’s up 1,200%. Three years later, it’s up more than 2,000%.

This is just what Bitcoin does. It booms. It busts. And it booms again.

As you well know, Bitcoin is back at it. We boomed in 2020 and 2021. Now we’re busting in 2022.

To expand on Luke’s point, check out the chart below from Charlie Bilello. It details bitcoin corrections and rallies since 2010.

In the “% Decline” column, you’ll see how far bitcoin fell in various crashes. And there are a lot of crashes.

But in the “% Return to New High” column, you’ll see the ensuing percentage return bitcoin tacked on in subsequent months on its way to a new high. And there are a lot of monster gains.

You’ll also see the chart is slightly dated, extending only through last spring. The bitcoin collapse from April 14, 2021 that extended through July 20, 2021 came in at a 53% pullback. The ensuing rally, topping out on November 8, 2021, was a 127% gainer.

Given this history, it’s obvious that long-time bitcoin investors are no stranger to epic collapses. But for those who continued to hold, the ensuing rewards have led to gains every time.

***But being objective, we have to look at today’s losses and ask if there’s something different

After all, the bears are out in full force, calling for bitcoin’s demise.

Here’s one such pronouncement from over the weekend:

Long-term Bitcoin #HOLDers aren’t worried as they’ve been through 73% declines before.

But previous declines didn’t involve anywhere near the total market cap lost during this decline, nor did they involve massive leverage.

This crash is just beginning. #Bitcoin will not recover.

In unpacking this quote, let’s begin by revealing its source – Peter Schiff.

For anyone unfamiliar, Peter Schiff is a gold bug with his own gold dealership – translation, he automatically hates bitcoin because it hurts his gold business.

Of course, that doesn’t mean we should discount what he’s saying. So, does he have a point?

Yes – in fact, I would agree with everything Schiff wrote…with one notable exception: the tag of “#Bitcoin will not recover.”

But Schiff is correct that this bitcoin collapse involves the destruction of a total market cap that’s unparalleled. He’s also correct that prior collapses didn’t involve this much leverage. Finally, yes, this crash could have much lower to go.

***And the reply to all of this is…so what?

So what that more market cap has been lost during this crash?

Does that mean there’s less global adoption than, say, one year ago? Not at all.

In fact, this is from CoinTelegraph about a week ago:

The adoption of Bitcoin (BTC) could occur more rapidly than the adoption of past disruptive technologies such as automobiles and electric power, with global take-up likely to hit 10% by 2030 according to a new report.

So what that this crash involves more leverage?

That doesn’t mean bitcoin is dead. It means the larger percentage of bitcoin speculators who bought on margin are getting burned and flushed out of the market. But that doesn’t mean that sturdier, long-term bitcoin “whales” aren’t beginning to buy.

On that note, here’s Whalemap:

New whale level has formed over the weekend’s dump.

The accumulation is quite large, >100k BTC, and happened on the 18th of June.

Finally, so what that this crash could have much lower to go?

Look back to the chart above and note the crashes of 94%, 72%, a second 94% drop, 76%, 85%, and 84%.

Again, bitcoin is currently down 68% from its most recent high. Given the context of its historical crashes, this 68% isn’t that bad, and could drop further as Schiff suggests – but again, so what?

***Nothing Schiff says has any relevance to bitcoin’s fundamentals, its historical boom/bust pattern, or its core function/value as payment alternative

So, has anything truly changed with bitcoin?

No, only its price.

Given this, let’s see Schiff’s call for bitcoin’s demise for what it is – just another incorrect bitcoin eulogy in a long list of such eulogies.

In fact, the site 99bitcoins tracks such bitcoin-death proclamations. Two conditions must be met:

One, the content itself (not just the headline) must be explicit about the fact that bitcoin is or will be worthless. That means no “maybe” or “could”.

Two, the bearish content must come from a person with a notable following or a site with substantial traffic.

It turns out, there have been 455 such assurances of bitcoin’s worthlessness. And all have been wrong so far.

***Changing our perspective from the past to the future, where is bitcoin likely going next?

In Luke’s update, he suggests two paths.

In the first, bitcoin could consolidate around the $20,000 level over the next few months, then enter a new bull market as early as 2023.

In the second, bitcoin could break down to $10,000 over the next few months. It would then consolidate around those levels for a few months, then enter a new bull market in late 2023.

Either way, let’s look at two reasons for optimism. Back to Luke, discussing the first, which is bitcoin’s realized price chart:

[This chart] essentially graphs the average cost basis of all Bitcoin investors in the market.

Historically speaking, crypto bear markets have bottomed right around bitcoin’s realized price point at the time. This happened in 2015. It happened in 2018. It briefly happened in 2020.

And it’s happening again right now.

The realized price of BTC today is about $23,300. Currently, BTC trades around $21,000.

If history repeats, the big BTC selloff will end around these levels and consolidate around $20,000 for a few months.

The second reason for optimism has to do with something called “dormancy flows.”

This indicator is a bit more complex, but simplistically, it provides a unique way of looking at bitcoin’s valuation relative to its trading volume.

Here’s Luke with more:

High dormancy flows imply market overvaluation relative to trading volume fundamentals.

Low dormancy flows imply market undervaluation relative to trading volume fundamentals.

Currently, dormancy flows for BTC are collapsing to levels only seen when bitcoin bottoms after a terrible crash.

That’s bullish – really bullish.

We’re running long, so we’ll stop there. But if you’re an Ultimate Crypto subscriber, check out Saturday’s update for two additional bullish indicators from Luke.

***Pulling back big-picture, what we’re seeing today is a normal part of bitcoin’s boom/bust cycle

That doesn’t make the pain any less intense. But it is a critical reminder that today’s meltdown shouldn’t be interpreted as “this time is different” – even though that’s what people like Schiff would have you believe.

So, if what we’re experiencing is simply bitcoin’s usual price action, then this is the shakeout that rids the market of speculators, leverage, and froth before a new, healthy push toward the next all-time high.

Here’s Luke on that:

[This current bitcoin crash] is creating the same generational buying opportunity as in January 2015 and December 2018.

That’s the long-term thesis we’re anchoring our strategy around. The current crypto crash will inevitably end. And it’ll lead into a new bull market where bitcoin and certain altcoins will soar in a matter of years.

There’s no question about that. The only uncertainties are when and at what price it happens.

By the way, just last week, Luke and fellow crypto expert Charlie Shrem held a live event in which they provided more details on what they see coming for crypto, and when.

If you missed it, we’ve made a free replay available for a limited time by clicking here. Luke and Charlie even give away one of their top crypto picks for free.

Here’s Luke to take us out:

Cryptos are crashing. Historically speaking, crypto crashes have produced generational buying opportunities.

We don’t think this time will prove any different.

At some point, likely by the end of the year, this crypto bear market will give birth to a new bull market. And we’ll see cryptos start to really shine again in 2023 and 2024.

Have a good evening,

Jeff Remsburg