Juan Villaverde is an econometrician and mathematician devoted to the analysis of cryptocurrencies since 2012. He leads the Weiss Ratings team of analysts and computer programmers who created Weiss cryptocurrency ratings.
Bitcoin surged to a 2019 high of USD 8,373 on May 16. And on that same day, we told a very large live audience that Bitcoin was ready for a correction.
And, as usual in the crypto world, it could be sharp. But when it happens, it will be the best Bitcoin buying opportunity since 2015.
Historically, the first pullback after a bull market starts is one of the best times to get back into the crypto markets.
We saw this in 2012 and in 2015, when previous Bitcoin bulls were just getting started.
In January 2012, for instance, after Bitcoin had rallied to USD 7 per token from its bottom of two just months earlier, Bitcoin suffered a 45% correction down to about USD 4.
But that was a launching pad for a bull run that would take Bitcoin into four-digit territory for the first time in its history, hitting a high of almost USD 1,200 by December 2013.
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See the chart below:
I have highlighted the correction in the gray box above. As you can see, after hitting its low of USD 4, Bitcoin bounced and never looked back. This is how the second bull market in Bitcoin history started.
The same happened in 2015. Bitcoin hit a high of USD 500. But then, after reaching a high in early November, it sold off by 40% to USD 300 just seven days later!
Here, just like in 2012, a major bull market – the third in Bitcoin’s history – followed soon after this first pullback. The bull market lasted into December 2017, when Bitcoin hit its all-time high of nearly USD 20,000.
How do we know history will likely repeat itself this time around? No one knows for sure. But Bitcoin’s fundamentals have certainly gotten stronger in the past 12 months:
1. The usage of Bitcoin is near all-time highs, with 24-hour transaction volumes hovering around levels not seen since late 2017. Just recently, it hit a high of 450,000 transactions in a day. The previous record was Dec. 13, 2017, just days before prices hit USD 20,000.
2. Despite the high transaction volume, fees on the Bitcoin network are at their lowest levels since August 2017.
Bear in mind that usage and fees are negatively correlated in Bitcoin. Thus, seeing transaction activity on par with that of late 2017 — even while fees are nowhere near that level — is a testament to the major technological upgrades that have made this possible.
One major upgrade is SegWit, a clever way to increase the size of each Bitcoin block without going through a potentially network-splitting hard fork.
This, in turn, paved the way for the second, more meaningful upgrade: the Lightning Network, which helps push smaller transactions off-chain, thus keeping Bitcoin fees contained while speeding up the transactions.
Put it all together, and we have good news on three fronts:
1. A major rally that confirms the beginning of a bull market
2. Greatly improved fundamentals, which will help sustain the rise
3. And the likelihood of a sharp correction, giving investors a very opportune entry level.