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Crypto Free Fall – When Will it Hit Rock Bottom?

By February 8, 2018 No Comments

Trash-Talking     

It seems like every time the crypto markets just can't go any lower - they do, and the trash-talking mainstream media, governments and banks just keep piling on.

This isn't the first crypto-obituary to be written and it won't be the last.  A historical analysis of price action reveals that cryptocurrency markets have been remarkably resilient to panic-selling and deputy downers of doom, and steeper drops usually precede more profitable comebacks.

Don't Panic

Take a deep breath and don't panic - we've been here before.  The first step is to adjust your perspective.  Recall that just over a year ago, bitcoin was trading under $1,000 and ethereum was about TEN DOLLARS.  Even at its recent low, bitcoin was just under $6,000 and ethereum dipped to $555 before rebounding.

Anyone who calls cryptocurrency "mega-sudokus" is completely missing the point.  Cryptographic math puzzles are the architectural building blocks of a system with unique emergent properties: unequivocally verifiable digital ownership, digital scarcity, and the first-ever fusion of a currency and its payment system: the coin is the transactions and the transactions are the coin.

Anyone who calls cryptocurrency "mega-sudokus" is completely missing the point. Cryptographic math puzzles are the architectural building blocks of a system with unique emergent properties: unequivocally verifiable digital ownership, digital scarcity, and the first-ever fusion of a currency and its payment system: the coin is the transaction chain and the transactions are the coin.

Will It "Crater"?

If a rock climber fails to arrest his own fall, and his rope fails too, and he falls all the way to the ground - that's known as "cratering". The question of whether this will happen to the crypto markets is one that weighs heavily on some investors' minds. 

It would be impossible to overstate the potential disruption of the conventional banking system achievable by cryptocurrency once fully developed - so Wall Street bankers would love to just cut that rope and watch it fall, which is why it serves their best interest to keep repeating the mantra that cryptocurrency has no intrinsic value because it is nothing more than math puzzles and alphanumeric strings.

The latest market drop is the longest and the deepest in the period we analyzed - a 66% decline over 32 days.  The other, perhaps more important chart formation shows that the most recent price recovery, though strong at 65%, failed to reach a new high at $17,178, before dropping all the way to $5,873 - ouch!

The latest market drop is the longest and the deepest in the period - a 66% decline over 32 days. The other, perhaps more important chart formation, shows that the most recent price recovery, though strong at 65%, failed to reach a new high at $17,178, before dropping all the way to $5,873 - ouch!

Mega-Sudokus

This obtuse mischaracterization appears in bitcoin obituaries from years ago (when its price was less than 1% of what it is today), and was recently echoed by the central bankers' banker - the general manager of the Bank for International Settlements (BIS), Agustin Carstens, who called bitcoin "mega-sodukus".

What these deputy downers of doom miss is the enormous value of the emergent properties of cryptocurrency that we've never seen before:  undisputably verifiable digital ownership, digital scarcity, and the fusion of medium and method of exchange into a single self-sustaining entity.

Cryptocurrency presents a massive disruptive threat to the conventional banking system, which is why Wall Street would love to see it free-fall and "crater".

Cryptocurrency presents a massive disruptive threat to the conventional banking system, which is why Wall Street would love to see it free-fall and "crater".

Following The Math

Knowing that an entity has intrinsic value is one thing; coordinating that value with a price target and timing is notoriously tricky, in no small part because it is subject to the vicissitudes of investor sentiment (aka greed and panic).

We love to geek-out on math, so we did a meticulous mathematical analysis of historic price data covering the last 25 ups and downs in the bitcoin market.  We compiled the data graphically into a chart and quantitatively into a spreadsheet - both shown below.

Price drops averaged 29% and lasted an average of 9 days.  Recoveries took an average of 11 days and were extremely profitable, with an average return of 62%.  The lesson here is that the cryptocurrency markets have been remarkably resilient, even when facing an onslaught of venomous vitriol from the bankers.  Market drops have always been eclipsed by subsequent powerful price "pops" - returning in profit more than double, on  a percentage basis, the value that was lost in the downturn.

Analysis of the last 25 major price moves in the bitcoin market reveals an average drop of 29% lasting 11 days followed by a 62% recovery over an average

Analysis of the last 25 major price moves in the bitcoin market reveals an average drop of 29% lasting 9 days followed by a 62% recovery over an average of 11 days

Deeper Dive

There are two more sobering aspects of the data to consider.

First, the latest market drop is the longest and the deepest in the period - a 66% decline over 32 days.  The other, perhaps more important chart formation, shows that the most recent price recovery, though strong at 65%, failed to reach a new high at $17,178 before dropping all the way to $5,873 - ouch!

Does this signal a downturn in the market?  No one can say for certain - market tops and bottoms are notoriously difficult to predict. Remember that less than a year ago people predicting $10,000 bitcoin were considered delusional.  Well-respected analysts are calling for 2018 prices of as high as $50,000, and a consensus survey by bitcoin.com quotes an average price prediction for Dec. 31, 2018 of $43,472.

Hang on tight - it's gonna be a wild ride.


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