Bitcoin in gradual climbing mode, up $200 today, but new data points south

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Updated: 06 December 2019

After five days straight of nothing by red candlesticks, Bitcoin was due to create a green one, if only to signal the faithful that it still had life and had sights on higher territories. As for the analyst community, no one is jumping out of their seats about today, ostensibly due to the fact that Bitcoin’s rise was just not large enough to confirm a new path in the making. Instead, tight ranging behavior has continued. In the meantime, Coin Metrics, a data analytics firm that focuses on finding “actionable” data in the crypto-sphere, has taken a deep dive into previous BTC price history and suggests a true bottom may be further south.

The purveyor of these sad holiday tidings is none other than the folks over at Crypto Briefing, who worked with Coin Metrics to analyze three components of Bitcoin’s price history, namely the 2013 bubble; the 2014-2018 bubble; and the current cycle. Their premise was that more might be going on in investors’ psychology than just fear and greed. They wanted to determine if there were also a few nuances from the likes of emotions along the lines of optimism, relief, and denial.

For the time being, let’s take a quick look at today’s charts. Nothing much has changed in the daily version, as annotated by CoinDesk:

Yes, we finally have a green candle. It subsequently peaked above the yellow line, but pulled back a bit to close at $7,395. Analysts have made a big deal about the “inverted hammer” from the day before, claiming that it represented the market’s rejection of a bull surge, a signal that a reversal was in the making. The “spike” from yesterday has yet to be explained, other than to suggest that a whale was splashing around, distorting the action for a brief moment, which would cause the apparent “handle” of the “hammer”.

The Bitcoin narrative these days takes one look at the downward sloping yellow line of resistance and postulates that $6,500 must be tested in the days to come. Past that point is open for conjecture, but a few have picked lower numbers, perhaps, hoping for bargain prices to appear right when holiday sales should be in full force. And, after this comment, you will usually hear a large choir sing the praises of Bitcoin’s long-term value potential, as if no one had ever heard that favorable bit of good news, if it happens.

And so, we are caught once more between the near-term bearish report and the long-term bullish retort. There is nothing like the present, however, and at times like these, in step the number crunchers to reveal their latest bit of sleuthing. Previous work from Coin Metrics has looked at Bitcoin addresses on the blockchain to determine how active they have been at points in time, but they are also known for applying a few algorithms to determine if balances have unrealized losses or gains.

Their latest research takes these two approaches and adds a twist – at what point in the up or down cycle do “hodlers” become active. With that intro in mind, let’s look at a few interesting findings that can only amaze any observer of BTC price action:

  • Both the 2013 bubble and the 2017 bubble had major corrections. Would you believe that each found a bottom after 84% of the ATH was decimated?
  • More amazing still is that the Coin Metrics’ analysis also revealed that at the two bottoms, the number of hodlers with unrealized gains was roughly equivalent, 43% for the former correction and 39% for the 2018 variety.

What inferences did the researchers draw from these curiosities: “Investor psychology suggests that prices cannot truly bottom until all investors have reached the point of maximum pain and capitulation is complete. The inference that can be drawn is that following a bubble, maximum pain and capitulation can only be reached when prices decline to a point where only roughly 40% of Bitcoin held have unrealized gains.”

Now that we have that insight, and trust me when I say that I have left out a number of details and simplified the fine work that these clever analysts produced, let’s fast forward to the present and assess where we are on this technical timeline. Trying to extrapolate these findings to current prices is not as easy as it sounds. Investor demographics have changed. Not as many folks are hodling, as in the past, and buyers have stepped in along the entire spectrum of prices. In other words, the water has been muddied up a bit.

The only meaningful conclusion that Coin Metrics is willing to share at this point is that: “The current cycle has a longer period to play out before a full correction can be confirmed. The mid-cycle correction of around $7,000 may not be the full correction at all, and further price falls may occur.”

Once again, this type of analysis does not speak to timing. It contends that $7,000 or $6,850, as others have speculated, may not be ironclad support. We suspect that, if Bitcoin hodlers with unrealized gains begin to approach the magic “40%” zone somewhere south of these two figures, then Coin Metrics will be the first one out of the box to let everyone know all about it. Until then… hodl away, if you must.