Bitcoin: Best-Ever Initial Recovery from Bear Market

By Juan Villaverde on May 15, 2019

Bitcoin is now the best-performing asset class of 2019. In the entire world! A temporary correction is likely. But when it comes, it will be a major BUYING opportunity.

Here are the key facts …

Fact #1. The Bitcoin rally is five months old — and counting.

After bear markets in the past, Bitcoin often struggled to recover in the early going.

Typically, after a final low, Bitcoin’s first rally lasted no more than 50 days and then petered out.

This time, the first rally has lasted more than five months, as Bitcoin has more than doubled in price after hitting a low on Dec. 15, 2018.

Big difference and very encouraging!

Fact #2. Sharp sell-offs in the early days of a bull market. Not this time!

In past bear market recoveries (notably those of 2011 and 2015), after those first 50 days, we’d typically see Bitcoin come down sharply — with selloffs of 45% and 30%, respectively.

Not this time around. The very fact that Bitcoin has been going up for over 150 days — without any signs of a meaningful pullback — is a strong confirmation that the bear market is firmly behind us.

Fact #3. Strong fundamentals supporting the market:

Helping to sustain the price recovery, Bitcoin fundamentals have improved dramatically:

  • Usage, as measured by daily Bitcoin transaction volume, is near its all-time highs. The high was about 490,000 per day back in 2017. This month, as recently as May 1, we’ve seen volume numbers as high as 450,000 in a 24-hour period.
  • Even more encouraging: While transactions are near all-time highs, transactions fees remain at low levels not seen since early 2017 – a time when both prices and public participation on the Bitcoin Network were much lower than today’s.
  • To a large extent, all of this reflects technological upgrades that have been deployed on Bitcoin since the heydays of the 2017 bull run: Segwit has contributed to block sizes that are larger than ever before. And the Lightning Network moved a considerable number of transactions off chain, also helping to speed things up.

The next short-term correction will be a buying opportunity.

One word of warning: Most recently, Bitcoin’s price rise may have been exaggerated by capital flight from the Bitfinex exchange and the Tether stablecoin.

Why? Because fears that the exchange might fail drove investors to the relative safety of Bitcoin. In fact, Bitcoin has been going up nonstop since April 25, precisely when news broke that the exchange was using Tether funds to cover losses from Crypto Capital.

These fears not only caused Bitcoin’s price to accelerate to the upside, but we also saw Bitcoin trade at a 6% premium on Bitfinex relative other exchanges. (A clue about that catalyst behind the rally.)

In the past few days, however, the Bitfinex premium has been arbitraged away and Bitcoin’s price on Bitfinex is now back in line with other popular exchanges. So in the last few days, it appears the most recent price surge is mostly due to speculation – Fear Of Missing Out.

This is one reason why prudent investors should be wary of a temporary price correction. But with that correction, investors who can afford the risk of crypto should see one of the largest Bitcoin buying opportunities in its 10-year history.

Best,

Juan

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