Bloomberg Market Specialist Li Zhao contributed to this article. The original version appeared first on the Bloomberg Terminal.
Background
Cathie Wood, founder of Ark Investment Management and longtime champion for cryptocurrency, predicted in 2021 that Bitcoin’s value would reach $1 million per coin by 2030. She reiterated this prediction in the following months, including purchasing 315,000 shares in Grayscale Bitcoin Trust in November 2022, buying a dip.
Wood’s prediction was met with some skepticism given the challenges faced by many large cryptocurrency firms, including the fall of cryptocurrency company FTX and the court ruling involving Ripple Labs expected in the first half of 2023.
The issue
The decreased confidence in Bitcoin and other cryptocurrencies stems from a public loss of confidence after high-profile incidents of fraud, misinformation and funding issues, among other challenges.
Bitcoin, specifically, plunged more than 60% by the end of 2022, leading to a total value loss of $2 trillion. However, some analysts argue that not only was this downturn expected, it also illustrates Bitcoin’s continuing potential.
Bitcoin’s meltdown in 2022 was influenced by the cryptocurrency’s four-year halving cycle that tends to bring up a period of massive drawdowns. The token showed more resilience than others last year as contagion spread across crypto intermediaries.
“Sometimes you need to battle-test, you need to go through crises to see the survivors,” Wood told Bloomberg Television in November.
Wood’s prediction could still bear out if certain chart analysis is correct. For example, the DeMark Combo indicator signals an exhaustion of crypto’s bearish trend. Crypto bulls also note that Bitcoin’s dip is similar to the Nasdaq Composite Index dotcom bubble crash, as both found themselves supported at or above the 0.236 absolute retracement level.
Those trend lines have many crypto bulls hopeful for not only a positive recoverybut also a higher sustained market value.
Tracking
Use Bloomberg’s charting tools to gauge where Bitcoin is headed.
The 38.2% projection lines (thick vertical red) correspond to Bitcoin’s four-year halving cycles, where the reward accruing to miners for verifying each new block of transactions is cut in half. Previous three halving events happened in November 2012, July 2016 and May 2020. The next one is due in 2024. The 76.4% projection lines correspond to Bitcoin’s three major tops: November 2013, December 2017 and November 2021.
Bitcoin prices tend to hit new highs in post-halving cycles, and its most severe bear markets occurred between the 76.4% and 100% projection lines in 2014, 2018 and 2022, respectively.
The magnitude of Bitcoin’s loss this year is similar to that of the dotcom bubble, and there are signs of potential trend exhaustion.
The DeMark Combo indicator is designed to anticipate a potential exhaustion or completion of the existing trend, before it actually occurs. Through a multi-phase price comparative process consisting of setup (green) and countdown (purple) indicators, it analyzes price data to provide insight as to the progress of a trend and potential timing and levels for exhaustion. It is designed to identify potential inflection points in markets and remain dormant in times of consolidation.
A purple 13 trend exhaustion signal appeared on the week of Nov. 13, 2022 which suggests the bearish trend since a year ago may have come to an end. Meanwhile, the price has been supported above the 0.236 absolute retracement level. A similar bottom was formed for the Nasdaq Composite Index after the dotcom bubble crash in early 2000s.
The Nasdaq’s three-year long bear market found support at the 0.236 retracement level. Crypto bulls may be hoping for a Bitcoin bounce in a replay of the early 2000s for the Nasdaq.
For more information on this or other functionality on the Bloomberg Professional Service, click here to request a demo with a Bloomberg sales representative. Existing clients can press <HELP HELP> on their Bloomberg keyboard.