Bitcoin is the best performing asset of our lifetime. Given the history of Bitcoin’s awe-inspiring returns shown below, the single most important question for every investor in the market today is if this gravity-defying asset can do it again.
The Bears want you to focus on the -77% bear market, as they have for all of the four major drawdown Bitcoin has experienced. You will not hear one Bitcoin Bear admit the truth, which is that Bitcoin has smashed every single performance record in equities within 15 brief years.
Source: YCharts
Yet, there is key evidence that shows how Bitcoin is stronger today than it was during the previous three drawdowns. The reason you don’t want to ignore this is because – despite steep +80% selloffs -- Bitcoin has reclaimed new highs within 3.5 years, every time. Therefore, it’s not only the size of gains Bitcoin has provided which places it as the #1 asset of all-time yet it’s the speed in which this is accomplished that is also remarkable.
I want my readers to be armed with facts – not emotion – and what I’m presenting below is the culmination of a history of accurate calls that I’ve made in the past on Bitcoin plus new quant-level information presented by Vincent Duchaine of Wealth Umbrella, who has created an automated buy/sell signal in Bitcoin using on-chain metrics.
Source: Twitter
Quick Note on the Crypto Panic
Below is an illustration of the history of how quickly Bitcoin has reclaimed its all-time high in the previous drawdowns.
The average time period for Bitcoin to reclaim its all-time high is between two to three years, with 3.5 years being the maximum amount of time. The chart shows the max drawdown for each bear cycle in red, followed by the recovery in green.
Keep in mind, that in order to break even after an 80% drop, it requires a stock or asset to go up 400% just to break even. Qulacomm, for example, suffered a similar drawdown in the dot.com bust. It took about 20 years for QCOM to regain its 2000 high. Cisco, another darling of the late 90s, has never recovered its 2000 peak.
This asset came to market during the Great Financial Crisis, and unlike most tech companies on the market today, not only has survived an economic recession, but was, in fact, found traction in 2009 during a time when tech was faltering to withstand macro pressures.
On January 3rd, 2009, the bitcoin network was created when Satoshi Nakamoto mined the starting block of the Bitcoin chain. Within the coinbase of this first block was the text "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks". This note references a headline published by The TimesThe Times and has been interpreted as both a timestamp and a commentary on the instability caused by fractional reserve banking systems. Bitcoin quietly set out to disrupt the centralized banking system, prior to which was inconceivable, at a time that was arguably more uncertain than what we face today.
One reason for this is because Bitcoin has successfully accomplished becoming a global store of value – a feat only a handful of currencies/commodities have accomplished. Many have argued against this claim based on bitcoin’s volatility. Those that make this claim fail to see that the two most popular stores of value – the US Dollar and Gold – have terrible track records.
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In 2022, gold topped with a ~45% drawdown. It took gold nearly 10 years to reclaim this high, which it was unable to hold. As of today, gold is about 8% below its 2011 high. The US Dollar, arguably, is the worst store of value. Since 1913 it has lost 97% of its purchasing power. Bitcoin, on the other hand, is up over 28 million percent since it first started trading in 2010, and has recovered from its bear cycles in a relatively short amount of time. It’s no wonder that citizens of emerging markets – who face extreme inflation --- love this store of value.
This specific utility in Bitcoin is further backed when we correlate crypto adoption to a specific county’s level of corruption and/or monetary instability. For example, some of the counties with the highest crypto adoption are Ukraine, Russia, Argentina, Turkey, Brazil, just to name a few.
To these people, Bitcoin offers a secure and efficient exit from the inflationary turmoil and centralized manipulation of their personal earnings. In essence, the lofty goal Satoshi Nakamoto established in the October 2008 white paper, which was to offer an exit from the fiat system, has manifested today in real-time.
Bitcoin’s Upcoming Rally – What You Need to Know
Bitcoin has no earnings reports, management overhauls, or supply chain disruptions that can affect its price. Anytime humans come together in a codified arena and begin trading an asset with their instinct for security as the primary driver, patterns develop across price history. Therefore, in order to determine what Bitcoin does next, we must measure sentiment.
One of the simplest patterns to measure is that an uptrend moves in 5 waves up, then corrects in a 3 waves pattern down. Once we get 5 waves up and 3 down, we then repeat this pattern in a fractal manner. As of now, since the 2018 low, we only have 4 waves in place, which implies that we have one more 5th wave push before the larger bull cycle is over.
A few points I want to make about the above chart. We have from the 2021 top a very complete and filled out corrective pattern. Recently, Bitcoin pushed lower on the FTX scandal, which has now provided us with the first bullish divergence on a weekly chart since the 2021 bear market began. This is when price goes lower with less momentum. This tends to mark the near end of large drawdowns.
Another one of my favorite patterns can be found in the detrend oscillator below. This is simply measuring the difference between two moving averages, and when set to a seven-year period, it tends to provide very interesting signals. Most importantly, the oscillator is currently finding support at the 2018 low and the oscillator is now building a new uptrend. When a new uptrend is building, this oscillator will tend to build this new uptrend on prior crash lows, which is playing out now.
