Bitcoin’s price movements are known for their unwavering volatility. There is no way for any individual, analyst, or expert, to truly know what the future holds for Bitcoin’s price. As an investor deciding whether to buy into Bitcoin, you need to do due diligence, and only invest what you’re willing to lose. That said, there are always many wondering whether Bitcoin has hit its bottom, making now a good time to buy.
Timing the bottom of a market is incredibly hard, making it just as hard to definitively ever say that an asset has hit a bottom. Plus, you never know when new negative news will suddenly come out and change all the analysis (the Coinbase and Binance news last week was a case in point). That said, Bitcoin seems to have potentially hit a bottom. Let’s look at its price action for the year and look at how recent negative news isn’t having the effect one might expect.
Bitcoin’s Strong 2023
The gutting of the cryptocurrency market that happened in response to the failure of FTX exchange, along with a slew of platforms like BlockFi and Celsius, pushed Bitcoin down to just over $15k USD in November 2022. That was as low as it got though, and it began 2023 with a price of about $16.5k per BTC. Just two weeks later it was back above $20k, and it hasn’t gone back to that level since, bouncing off the level after the US banking failures in early March.
Bitcoin traded around $23-25k for most of the year until the 10th of March saw BTC hit about $19.8k in response to the Silicon Valley Bank collapse. Just 10 days later it was even higher than it was before the drop, sitting at $28k. It has since traded between $25k and $30k for the past few months. Even with the SEC now suing Coinbase and Binance exchanges, the crypto market hasn’t capitulated in an at all comparable way to how it did in November 2022.
SEC’s Crusade Against Crypto
The US, and more specifically the SEC, seems to have it out for crypto. The White House recently proposed the Digital Assets Mining Energy (DAME) tax. If passed it will force any crypto mining firm based in the US to pay a 30% tax on their energy expenditures. This will likely force smaller scale mining companies to find new places to set up their operations to keep up their profitability.
Now, the SEC has sued both Binance and Coinbase exchanges for violating US security laws. They started by filing against Binance on June 5th, and followed up by filing against Coinbase the next day. In doing so they’ve also now classified over 60 digital assets as securities. Both Coinbase and Binance are expected to fight the suits voraciously. It’s also somewhat odd that the SEC ever granted Coinbase the status of being a publicly traded company if they were selling unregistered securities.
In March 2023, Coinbase submitted a petition to the SEC to explain how their staking services cannot be considered securities. Of course, the petition hasn’t been addressed, and the SEC instead continues to use enforcement only rather than actually creating regulatory clarity. Both these cases will be extremely interesting to follow, for both regulators and crypto believers.
Metrics Say Bitcoin Bottomed in November
On-chain data remains the best way to analyze Bitcoin and those metrics indicate that Bitcoin may have indeed hit its bottom back in November 2022 when it dropped to about $15k USD per. Two metrics that may indicate this are Market Value to Realized Value Ratio (MVRV) and Net Unrealized Profit and Loss (NUPL).
MVRV is a metric used to determine whether an asset such as Bitcoin, is currently undervalued or overvalued. When ratios are above 3.7, this means the asset is likely overvalued and perhaps at a top. Conversely, if it’s below 1, it’s undervalued and perhaps at a bottom.
The last time the MVRV for Bitcoin was around what it was in November 2022 was back in December 2018, when the price of Bitcoin was about $3,200 per. Even though Bitcoin didn’t make waves that year, its price never dropped below that low again.
NUPL is a metric used to measure the average profit margin of all holders of an asset. It began to display similar signals during the same November low. Similarly to MVRV, NUPL can help indicate whether an asset is undervalued or overvalued.
In general market history, NUPL levels above 0.7 (meaning a 70% average profit margin) signal market tops, while levels below -0.4 (meaning -40% profit margin) signal market bottoms.
Bitcoin’s NUPL ratio hit a low of -0.3 in November 2022 when Bitcoin was at a price of $15,800. It has now held a positive reading since the middle of January 2023. The NUPL is currently trending around 0.21. This means that Bitcoin may be in the midst of an upward cycle.
Closing Thoughts: Only Upward from Here?
While the above metrics may signal the Bitcoin is on the way back up, there’s certainly no guarantees. All it takes is enough negative news for it to capitulate. That said, the capitulation when the SEC announced their suits of Binance and Coinbase were extremely muted compared to the FTX debacle.
During the FTX collapse, $145 billion in realized losses were made. As the SEC announced the suits of two major exchanges, only a total of $176 million was lost across both days, not even a tenth of the losses in November. It seems that people are becoming more willing to hold onto their Bitcoin.
