by Panxora CEO, Gavin Smith
Even the most casual bitcoin follower will have felt that bitcoin has been in a bear market since its peak in December 2017.
From the December 2017 peak of just under $20,000 down to a low of a little north of $3,000 in December of 2018 this represents a fall in the price of bitcoin of close to 85%. The start of this year has seen the usual speculation over where bitcoin will go over the 12 months and, unlike recent years, 2019 shows many forecasters expecting further declines in the BTC price – some targeting as low as in the region of $1,300. This is where bitcoin peaked at the previous 2013 bull market.
I believe that this may be a bit pessimistic. While a bear market of just 12 months is on the short side, (the last slump took 20 months to play out) consider the extent of this price decrease. If we use the previous bear market as a comparison, the extent of this move is almost identical in percentage terms to the last bear market.
Market sentiment also bears consideration. The number of people expecting bitcoin to go up in price is currently pretty low. Institutions are pulling back from market participation and last year’s enthusiasm for investing in the cryptocurrency market seems to be almost completely gone. (Just talk to anyone involved in a token launch right now.) If I don my contrarian hat, I would predict that this bodes well for the market direction to be positive in coming months.
However, even with the opinion that bitcoin could be positioned for a rally, the broader macro-economic backdrop is of considerable concern. We are entering (or more precisely have entered) a period of massive global belt tightening in terms of the availability of credit. In addition to raising interest rates, central banks have either started (in the case of the US) or are starting (in the case of Europe and Japan) to reverse the Quantitative Easing bond purchase programmes that followed the 2008 financial crisis. This will inevitably drain liquidity from the global system.
Even with influence, there are many factors that influence the price of bitcoin. For instance, another factor which will lead to long term price support for bitcoin is the negative cashflow for most mining operations at current price levels. While the price of bitcoin pushed higher in 2017, a large number of small marginal miners entered the space. With the 2018 decline many of these small poorly capitalised miners will be pushed out of the market. This will leave bitcoin mining in the hands of the larger, better capitalised mining operations that can afford to warehouse their mined bitcoins. The removal of this constant flow of new bitcoins onto the market should have the longer term effect of pushing the price of bitcoin higher – therefore I still believe that the medium term outlook for bitcoin price movement is positive and there is a strong possibility we will see a rally in the bitcoin price at least for the next 6-12 months.