Bitcoin Bull Market Considerations

The central argument of this essay is that the start of Bitcoin’s next bull market will be more subdued than the bull market of 2017.
Given the substantial drop in Bitcoin’s price in 2018, many speculators are undoubtedly wondering when the next bull market will begin.

It is no secret that plenty of speculators bought Bitcoin well above the current price (~$6400 at the time of writing) and are patiently waiting for Bitcoin to rally once again so they can break even and maybe turn a profit.

In this essay, I will posit three arguments as to why I believe that the next Bitcoin bull market won’t be as manic as bull market of 2017.

This is not to say that Bitcoin will never reach its all-time high. Rather the purpose of this essay is to offer a more grounded take of what one can expect from a Bitcoin bull market post-2017, and why.

First Mover Mania
Novelty in tandem with increasing price is a powerful catalyst.

Nobody had heard of Bitcoin before, nobody can explain it to you, but its price was going up rapidly. Something something digital gold, sound money, and you’re an idiot if you’re not on board.

Sound familiar?

The bear market of 2014 (when Bitcoin was at an incomparable price, and retail speculators don’t look at charts anyway) was, I would argue, a distant consideration for speculators in late 2017. Instead, Bitcoin was this new cool technology that was only known to be increasing in price.

The reality now is quite different for two main reasons.

I) Due to Bitcoin’s meteoric rise and subsequent fall, the public at large (and certainly most people who follow markets) will have now heard of Bitcoin given the incessant news coverage on the way up, as well as on the way down. I submit that a very large portion of the novelty, which was a strong catalyst for buying, has since worn off.

II) Previously, Bitcoin was only known for its increasing price. At this point, you may be understandably concerned with my fixation on the price. In response, I humbly submit that without the rapidly increasing price, Bitcoin would have enjoyed but a mere fraction of the coverage it received in 2017, if any at all. Price is an inextricably important factor when it comes to the public’s perception and the media’s coverage of Bitcoin. To return to the argument: in 2017 Bitcoin was known for its rapidly increasing price, and I would argue very few investors scrolled all the way back to 2014 for the last bear market. The present circumstances are different: 2018 has proven that Bitcoin can erase profits as quickly as it can create them, and this is something that current and future investors will be cognisant of.

The argument can be summarised thus: much of the hype about the technology is gone, and more importantly, unlike in 2017, people have now witnessed firsthand how much money they can lose by investing in Bitcoin.

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Technical Resistance and Price Discovery

Support that is broken turns to resistance.

In 2017, barring a few regular corrections, Bitcoin faced no technical resistance.

What was there to resist the price, aside from psychological barriers?

No previous support levels acting as resistance, great news coverage (usually about price going up and setting new all-time highs), and exciting Bitcoin-related instruments in the making e.g. futures.

Literally everybody was winning and there was nothing standing in the way: the market was in full price discovery, guided and influenced solely by the speculators at that specific period in time.

2018 is different.

We have more price history available, and all the areas where Bitcoin found support in the past that are above the current market price, can now reasonably be expected to act as resistance.

Price has been ‘discovered’, so to speak, and now traders and investors alike have reference points for selling and something to measure the current price against, namely the all-time high.

I submit that the existence of technical resistance levels, in tandem with the fact that there is a clear all-time high (and other highs) that can be used as reference points, will render a future bull market much more moderate and less manic than the totally blind everyone-is-winning price discovery mania of 2017.

Broad-brush Bitcoin resistance levels
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Itching for Breakeven

Some investors just want to get their money back, or at least see their investment in the green.

The concept of breaking even could not even reasonably apply in 2017. Aside from the regular and short-lived corrections, it was virtually impossible to be losing money for any meaningful period of time when buying Bitcoin.

That has changed.

It is invariably true that plenty of speculators bought Bitcoin near the highs and have lost a lot of money doing so.

As mentioned: on the way up, it was virtually impossible to be down on a Bitcoin investment and thus there was no material impetus to sell at a certain point. Today, especially if one invested in late 2017, the chances of being underwater are very high (assuming one didn’t average in earlier in the year and instead caught the frenzy late, as many did).

Thus, there appears an impetus to sell at a certain price level; an impetus which did not exist last year.

While I agree that manic markets render humans manically greedy, after months upon months of drawdown many speculators uninterested in the technology and asset class as a whole i.e. those only interested in making a quick buck having seen the price skyrocket, just want to get their money back and nothing to do with Bitcoin and cryptocurrencies.

I submit that the fact that lots of people lost money, which was virtually impossible to do in 2017, means that there will be more sellers in the next bull market. This will, in my estimation, mean that the rally will not be like the vertical Concorde flight price action of last year.

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Parting Thoughts

A bull market means rising prices, denoted by consistently higher highs and higher lows on the price chart.

A bull market does not mean that Bitcoin will go back to doing its ‘thing’ of going absolutely vertical and making everyone rich quickly.

I firmly believe that at some point we will see another Bitcoin bull market.

I also believe that it’ll be more tame than last year’s, for the reasons stated.

I am sure there are plenty of other arguments and counter-arguments pertaining to the next bull market (I haven’t even covered altcoins in this essay, for example) but I wanted to share my broad ideas.