Forecasting the Path of Bitcoin’s New Uptrend
Looking back at previous market cycles, can we look for a potential top for the coming uptrend?
With bitcoin’s price having doubled from its December 2018 low, it seems the next cycle is well under way. While there will be plenty of ups and downs, the two figures that interest long-term hodlers the most are the last bottom and the next top. We can assume the former was $3,100. So, where might this cycle end?
Disclaimer: this is not intended to constitute trading or investment advice. Bitcoin Bulletin will never tell you what to do with your money. Past performance is no guarantee of future performance – however, we would be equally unwise to ignore it.
We’ll start with a look at our macro log chart, which shows the growth of bitcoin since its inception. This forecasts the growth of bitcoin according to straightforward mathematical rules found in nature. Right now, bitcoin’s baseline – its fair, sustainable value level – is around $4,200. By the end of this year it will be $6,500, by the end of 2020 it will be $12,400, and by December 2021 it will be $23,000. This is a lower bound for bitcoin’s value, meaning that Mike Novogratz’s recent claim of $20k by 2020 (the individual point closest to the red line) is entirely reasonable by our metrics. In fact, given the enthusiasm of the average bitcoin bull market, it’s somewhat on the low side. John McAfee’s prediction is a little further from the red line for the same date… The December 2021 baseline value is $23,000. Remember that a bull market might carry BTC 5-10 times higher than this baseline value.
Next, let’s look at bitcoin’s bubbles, and where these have topped out:
- 2011: $32
- 2013: $1,200 (we do not count the April 2013 blip)
- 2017: $20,000
There were other spikes and crashes in price, of course, but we won’t count anything earlier than 2011 because the market was in its infancy and so small and illiquid. From past performance we can see that growth from the top of the first bubble to the second was around 40x, and then 20x from the 2013 peak to 2017’s top. It’s only natural the multiple should be smaller, since it takes so much more money to move the price of bitcoin today than it did a few years back. Plucking a conservative figure out of the air, we’ll suggest a 10x multiple from the last bubble for the next cycle, making a top of $200,000 – not so far from Tim Draper’s ‘$250,000 by 2022/2023’ prediction.
Another, and arguably better, way of forecasting bitcoin’s more organic growth is to look at its yearly lows. This gives you the growth in hodlers who won’t sell at any price:
- 2012: $4
- 2013: $65 (16x)
- 2014: $200 (3x)
- 2015: $185 (roughly level)
- 2016: $365 (2x)
- 2017: $780 (2x)
- 2018: $3,100 (4x)
Looking again for a conservative average, we can say that bitcoin has had a habit of rising around 250% every year for the last five years. This doesn’t help predict a bubble top, but it does give some indication of where the market might bottom out or seek to stabilise long-term, and gives us another lower bound. Assuming the inflection point for the bear market was December 2018, the low for 2019 is about the same as 2018 (the same pattern as 2015, where the market bottomed around the turn of the year). Keeping our 2.5x annual growth rule, we’d again expect to see $20k ($3,100 x 2.5 x 2.5 = $19,375) by the end of 2020, or $50k by the end of 2021. That’s before any bull market effect is factored in.
Finally, let’s look at the movement from bear-market-lows to bubble tops:
2011-2013: $2 to $1,200 (600x)
2015-2017: $155 to $20,000 (129x)
Again ,the earlier cycle was more impressive since bitcoin was that much smaller and the market could be moved further by less money. We really don’t have a lot of data to go on here, but the percentage increase in the second bubble cycle was around a quarter of the first. With a back-of-envelope figure of 30x (about a quarter of the 2015-2017 increase), we’re still looking at $100k BTC as a top this time.
The last question is when this cycle will top out. This question has keen relevance to where it will top out, too, since a longer bull market can go higher and doesn’t overheat so fast. But for now, we’ll stick with the expectation of a four-year cycle, based on the halving schedule, as well as bitcoin’s last market cycle (both peak-to-peak and trough-to-trough were four years).
All of these figures are broadly consistent, albeit there is quite a spread at the top end. Putting it all together – and with all the normal disclaimers – we might expect that BTC will hit the six-figure mark, and possibly significantly higher, by December 2021.