On December 17, 2017, Bitcoin (BTC) peak in value, reaching over $19,000 USD per coin on most exchanges. Since then, there has been a 65% correction in prices with prices hovering near $6,800 at the time of writing. This sharp drop has not been surprising to many veteran investors as Bitcoin has had over 90% corrections in its past. However, the depreciation has caught many newer investors off guard. In this article we will try to analyze when the bear market will end.
The above picture shows a chart of Bitcoin since 2011 on a logarithmic scale. Bitcoin Network’s NVT ratio, defined as the total market cap of Bitcoin (in USD) divided by the 28-day average total transaction volume flowing through the Bitcoin network (in USD), is portrayed by the brown line below. Historically, when the NVT ratio peaks above 100, the network becomes overvalued and subsequently experiences a bear market, lasting anywhere from several months to over a year. The healthy NVT ratio lies between the dotted lines, as shown above (between 30 and 100). The NVT ratio is essentially because this allows us to see the underlying demand for the network. The price is sustainable when the ratio is low because there is a healthy demand for the network at that specific price level. Extrapolating from the graph above, we can see that Bitcoin may see a prolonged bear market, similar to the 2014 bear market.
Moreover, we see these (blue arcs) phases of parabolic log advances in the price history that generally end with periods of bear markets. Therefore, the recent correction should be viewed as simply a cool-off and consolidation period in Bitcoin’s history. The underlying technology and adoption is very favorable to the long-term development of cryptocurrency, although from a technical perspective, we are likely to see another year of correction until the NVT ratio and the value flowing through the network can sustain the current price.