Bitcoin Bear Market Will Likely Continue Due to Low Transaction Volume, Analyst Argues

Omar Faridi
  • Market analyst Willy Woo predicts bearish crypto market trend to continue.
  • On-chain transaction volume is not enough to start a bull run, based on Woo's NVT ratio.

Bitcoin’s (BTC) price has dropped by over 80% last year, and the value of other major cryptocurrencies has declined by as much as 99% (in some cases). According to some analysts, the digital asset market could now be ripe for a bullish run.

Willy Woo, a prominent researcher and cryptoasset analyst, recently noted via Twitter that on-chain digital currency transaction volumes were too low for prices to recover anytime soon. Woo, who accurately predicted in late May 2018 that bitcoin's price would drop below $6,000 before showing any signs of recovery, has now argued that high levels of volatility in recent weeks could have led to the surge in on-chain volume of cryptocurrencies.

Drop From $6K To $3K Not A Sign Of Accumulation

Assessing market conditions via a tweet, Woo wrote that the "initial volume spike false signalled a faster detox and an earlier end to the bear market." In rality, he added, it was a side effect of volatility, and the "move from $6k to $3k created immense trade volume, but it was in no way a signal that accumulation volume had begun."

Woo also observed:

Going on to explain price movements in the cryptocurrency market, Woo mentioned that the Network Value to Transactions (NVT) ratio (a metric he developed) was currently on the higher side. This, according to the Exodus wallet advisor, means the value of on-chain transactions is considerably lower than the valuation of the network.

Bear Market Could Last Until Second Half Of 2019

The NVT ratio is used to estimate the intrinsic value of cryptoassets, which helps investors determine when the price of bitcoin and other digital currencies is too low or too high. Commenting on how the effects of the recent spike in volume caused by high levels of volatility has now subsided, Woo noted: 

That volume has since subsided. Leaving the NVT chart on the high side of its oscillation around the main move downwards. The key thing here, in my interpretation, is it's on the high side of its band, so I think an up move is limited, bears will win the longer term trade.

In November 2018, Woo also predicted that a bearish trend in the crypto market would continue, arguing that downward pressure on bitcoin could last until the second half of this year. He referenced data from NVTS, which he observed had dropped below its support levels. Last year, Woo had said BTC's price would likely not be able to break past its 200-day Moving Average (MA).

He predicted (in November 2018):

If price (in the short term) bounces upwards here, which is certainly possible, I think the 200 day moving average is the upper band of the move. This is ~$7k right now. Remember if the price goes above the 200 DMA, in the history of BTCUSD’s 8-year trade history, it’s been a reliable indicator of a bear to bull transitions. It’s too early to transition out of the bear.

Bitcoin is trading at $3,859. according to CryptoCompare data, after recording an intraday high of around $3,972. The cryptocurrency market capitalization stands at just above $130 billion at press time.

Bitwise’s Global Head of Research: ‘Bitcoin Is Like Gold … Just in the 1970s’

Siamak Masnavi

In an article published earlier this week, Matthew Hougan, the Global Head of Research at Bitwise Asset Management, argues that Bitcoin is too volatile to be considered a "store of value", but that is OK because if you want to become wealthy, what you really want is "an emerging store of value". 

Hougan's article for Forbes, which came out on Wednesday (August 21), was addressing the claim made in a Barron's article published on August 16 that questioned the claim that Bitcoin is a safe haven asset.

In particular, Hougan highlighted this paragraph from the Barron's article:

This week certainly would appear to qualify as a good test for an asset’s safe-haven bona fides... There was a market meltdown in Argentina, escalating trade tensions between the U.S. and China, inversion of the Treasury yield curve (viewed as a recession indicator), grim economic news from Germany, and anti-government protests in Hong Kong.

The author of the Barron's article was trying to point that despite all the global turmoil that week, Bitcoin ended the week down 10%.

Hougan says that we should not take from this that Bitcoin is not digital gold. He says that, in fact, Bitcoin is behaving just like gold did in the 1970s. 

According to Hougan, "safe haven assets are supposed to be boring." For example, he points out that gold's annualized rate of return since 1980 is only 2.3% per year, which when adjusted for inflation, comes to -0.7% per year. In other words, it has been basically been "holding its value", which is what you want in a "store of value."

He then says that if, however, "you’re interested in wealth creation," then "history suggests you don’t actually want a store of value; you want an emerging store of value" (i.e. "an asset that has all the characteristics of a store of value, but doesn’t yet have widespread acceptance amongst investors").

Hougan looked at the history of gold and found that the "vast majority of returns gold has enjoyed in the modern era came in the 1970s":

  • 1970s: 1,365% 
  • 1980s: -22% 
  • 1990s: -28% 
  • 2000s: 281%
  • 2010s: 50%

He says:

The 1970s was, of course, when the U.S. abandoned the gold standard. At the time, people didn’t know what to make of gold. Would it succeed as a 'safe haven' asset, untethered from the dollar, or be cast aside as a 'barbarous relic,' as John Maynard Keynes once called it? The result was a period of significant volatility, as the two forces argued back and forth. There were years, like 1975, when gold tumbled in value, falling 25%. And years, like 1979, when it soared, rising 120%

He also says that the daily price volatility of 1970s gold was not that different from Bitcoin's daily price volatility:

There was daily volatility too: In 1973, gold’s price moved more than 3% one out of every ten days! Sounds almost like bitcoin to me.

He then notes that just like the uncertainty about the future of gold back then made it a risky asset to own, it was that risk that "led to gold’s volatility and strong returns," and that as "evidence mounted that gold would in fact continue to serve as a safe haven, returns spiked and more investors made gold a part of their portfolios." Hougan believes that the same scenario is now playing out for Bitcoin.

Hougan considers Bitcoin to be "an emerging store of value" that will keep increasing in value over time as more and more investors "gain greater confidence in bitcoin’s place in the world" and as it gets "easier for institutional investors and financial advisors to buy."

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