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As Its Price Tumbles, Is Now a Good Time to Buy Bitcoin?
Bitcoin isn’t having the best of weeks. Having been priced at $40,000 on June 14, it now stands at $30,000, representing a drop of 25% in only seven days. Things are even worse for the cryptocurrency market as a whole, which has fallen in value by 27% over the same timeframe (as of writing), with certain altcoins — such as dogecoin and polkadot — falling by a little over 45%.
Theories abound as to why bitcoin and the rest of the market continues to slide, with much of the media identifying the ongoing crackdown on miners in China as the chief culprit. But regardless of whether it’s the Chinese government, a shakedown by whales or simply declining confidence (including in the stock market), one thing is becoming increasingly clear: bitcoin can now be bought at a discount.
Yes, it may be an odd thing to say when bitcoin’s price is falling, but the more it falls to new lows, the more it may be worth buying. Retail traders in particular tend to buy at peaks and sell at bottoms, so their intensifying bearishness may actually be a good sign of better things to come. At the same time, historical price data indicates that bitcoin is now priced well below the level given by its 11-year trendline, suggesting that it may sooner or later catch up.
Why Now Is A Good Time to Buy Bitcoin
The tricky thing, however, is predicting when the current slide will stop. Bitcoin and the rest of the cryptocurrency market has been descending ever since May 12, when Tesla announced it will no longer accept bitcoin as payment for its cars (due to environmental concerns).
Since May 12, bitcoin has lost around 45% of its value, while the cryptocurrency market has lost around 49%. BTC is also 53% down from its all-time high (set on April 14) of $64,804, with no clear sign of when it will stop declining.
Some analysts have targeted a price around $25,000 as the level where bitcoin will stop falling.
Wealth advisor and strategist Luke Lloyd has been predicting a drop to $25,000 since February. Source: Twitter
Now that bitcoin has hit as low as $29,900 in recent hours, a floor of $25,000 looks increasingly credible (although some analysts have even suggested a bottom as low as $15,000).
Regardless of where exactly it lands, bitcoin’s current price level should be regarded as highly attractive, assuming you believe that the cryptocurrency is going much higher in the long-term. Yes, it has fallen fairly consistently over the past month, but this fall has arguably made it significantly more buyable. This is for several reasons.
Firstly, the entire cryptocurrency market is falling right now, and it seems that traders are gravitating more towards bitcoin as a relative safe haven. For instance, bitcoin’s dominance of the overall cryptocurrency market cap was as low as 39% on May 19, yet it has since risen to 47%.
In other words, if you’re going to buy any cryptocurrency during the current downturn, it may as well be bitcoin. Its share of the market’s overall value is growing, with traders flocking to it more than any other cryptocurrency.
Not only that, but bitcoin’s history indicates it’s priced substantially below its trendline. This is according to a recent report from Pantera Capital that concluded bitcoin is priced 36% below its 11-year trend (which suggests a price of $62,500). That was published on June 14, when BTC was worth $40,000. It’s now priced at $30,000, meaning that it’s 52% below its 11-year trend.
Source: Pantera Capital
To put this differently, Pantera’s research implies you’re currently getting a 52% discount on bitcoin’s historically indicated price. This would indeed suggest that now is in fact a good time to buy bitcoin, despite recent falls.
Other data supports this view. The stock-to-flow model — which predicts bitcoin’s price based on its scarcity — also claims that now is a very good time to buy bitcoin. As analyst Lex Moskovski pointed out on Twitter recently, the “negative deflection” from the model (i.e. the difference between the model’s prediction and bitcoin’s actual price) is nearly the highest it has ever been.
Source: Twitter
Assuming that you believe bitcoin’s supply and its flow (i.e. how frequently new BTC is being minted) does predict its price, then the data above really does indicate a great time to buy. And as the chart above shows, big negative deflections (as shown in green) haven often preceded significant spikes in bitcoin’s price.
In parallel with this, social data from Santiment shows that market sentiment is at its lowest level in nearly a year. As Santiment itself tweeted, negative sentiment is perversely an indicator of a good time to buy, especially when peaks in positive sentiment usually precede significant falls.
Source: Santiment
Santiment’s findings are backed up by the Pantera report mentioned above, which found that investors disproportionately tend to buy when bitcoin is at a peak, and not when it’s at a low. In referring to the 11-year trendline for bitcoin’s price, Pantera noted, “the market spent only 10% of the time above 500% of fair value, but 39% of inflows came in at or above that level.”
That is, 39% of buys came when bitcoin was priced 500% above its trendline. That’s pretty crazy.
Calling the Bottom
This all indicates that now may actually be a better time to buy bitcoin than when it was performing well and hitting as high as $64,804. Of course, the trick is predicting when BTC will hit its bottom, because even after losing more than 53% of its value since its April ATH, it can still sink further.
How much further? This depends on a number of factors, from the behavior of the stock market and wider global economy, to regulation and whether Tesla sells its bitcoin (a possibility). It may also depend on whether Tether — as its critics (who claim it’s a scam) have long predicted — somehow collapses amid the ongoing fallout from its settlement with the New York Attorney General.
Hyros CEO Alex Becker predicts that Tether will eventually cause a short-term market crash. Source: Twitter
It’s possible that bitcoin could sink below $20,000, although predicting a bottom is much like predicting a top: impossible. Irrespective of the particular level bitcoin will bounce up from, the fact remains that, if you really believe the cryptocurrency will eventually rise much higher than its current price of $30,000, now certainly is a good time to buy.
