Extensive research carried out by market research startup Delphi Digital is pointing to the fact that Bitcoin (BTC) could be reaching its bear market bottom during 2019’s first quarter.
UTXO And Market Cycles
In a document titled “The State Of Bitcoin,” analysts from the firm make observations of the Unspent Transaction Output (UTXO) data on the Bitcoin network, subsequently taking advantage of the data to show correlations with the BTC price cycle.
First, what’s a UTXO? The official definition from Bitcoin.org describes this concept as “an Unspent Transaction Output (UTXO) that can be spent as an input in a new transaction.” Basically, a wallet address that contains BTC, but hasn’t yet been used to spend said coins.
The graph below depicts a strong correlation between Bitcoin price rallies and the number of UTXOs, represented by the green line.
In the report, Delphi Digital explained the relationship between new investors entering the crypto market and consequential declines in price:
“As we saw at the end of 2017, continued price appreciation leads to a rapid influx of new users/additional money into bitcoin, often deep into a rally, subsequently followed by a significant price collapse. In other words, these individuals became the ‘bagholders’ of their time.”
The correlation implies that every price boom gives birth to a new class of “HODLers.” Using the past trends displayed by the UTXO line on the chart below, the next predicted bottom for Bitcoin is calculated to be in the first half of Q1 2019.
Sentiment And Scarcity
Referencing the chart below, researchers at Delphi Digital also pointed out that around 30 percent of BTC in circulation hasn’t moved in at least 3 years, which indicates two notable potential scenarios are at play.
The first being that there is strong bullish sentiment amongst the crypto community, especially in terms of the multi-year prospects that the cryptocurrency has.
The second being that the reason for the growth in UTXOs is down to lost BTC addresses, which are most likely never to be recovered. Another research firm, Chainalysis, estimated the total likely lost Bitcoins to be between 2.78 and 3.79 million.
In both instances, this can only be viewed as positive for Bitcoin, elevating it’s perceived value. The former, invoking trust and strong long-term sentiment, whereas the latter implies increased scarcity, therefore increasing the inherent value of the already finite digital asset.
Back To The Future
Another section of the research paper points out a striking resemblance between 2013’s and 2017’s price action of BTC.
The overlaid charts show significant correlations, including the extended bear market which followed each year’s price peak. Each of the aforementioned bear markets featured multiple relief rallies before (in 2013’s case) reaching a definite bottom, consolidating, and then going on to stage upward price momentum, reaching the next peak.
Using historic charts to predict future outcomes isn’t always the most accurate way to forecast market patterns. However, in the case of Bitcoin, this 2013 vs. current price chart can act as a solid reference point for market behavior in the coming months.
Time To Invest?
Delphi Digital stated their view on the upside risk of investing in Bitcoin at its current level:
“There is significant upside risk over the next 12 months as a number of catalysts (ETF approval, etc.) could propel Bitcoin prices higher”
It’s needless to say the research points to both the short-term and long-term potential of Bitcoin. Utilizing UTXO data, we can clearly see a pattern is forming, and Q1 2019 could be the timeframe in which the flagship cryptocurrency finally reaches a definite bottom.
As concluded in the research paper, there are several upcoming events that could act as momentous catalysts for BTC in 2019. These include Bakkt’s issuance of its physically-backed Daily Bitcoin Futures contracts and Nasdaq’s release of its futures contracts in collaboration with VanEck.
One thing we’re not certain of is what price level will mark the bottom for BTC. My vision is that after observing past price performance and taking into account upcoming fundamental events, BTC is highly likely to realize an end to the current brutal bear market. This will likely follow a period of consolidation before continuing to stage strong upward momentum, reaching a new peak in years to come.
Where’s next for Bitcoin? Will 2019 see the cryptocurrency reach a definite bottom? Let us know in the comments 🙂