Pugilist Ventures Founder is Bullish About Bitcoin (BTC) for the Next 2 Years, Cites 2020 Rally
Bitcoin (BTC) has been down in 2018. The popular digital asset lost more than 82% of its value since its all-time high in December 2017 and now the crypto community is waiting for a recovery. Christopher Brookins, the founder of Pugilist Ventures, a quantitative crypto fund, wrote an article showing why Bitcoin has the potential to grow in the future.
He said that just recently the price began to rebound even when the RSI and SWTO continue to be in a declining trend. That means that it might be possible for Bitcoin to find is bottom just at the beginning of 2019 and later start to grow once again.
Brokins makes a clear distinction between volatility and price growth. In order to explain this, he said that many market commentators and analysts believed that the last quarter was always a good period for the market to grow. However, he shows that this last quarter was consistent with an increase in volatility. He explains that bulls were mistaken and that what they believed was a price increase was just related to higher volatility. IN general higher volatility is associated with higher prices, but the last quarter of 2018 shows that this is not the case.
He explained about this situation:
“After analyzing the overall trend in 2018 (demonstrably bearish), price volatility compression, historical volatility patterns, and fundamental indicators, it should have been more clear to market participants that the probability of a negative price breakout was far higher than to the upside.”
Brookin went on saying that fundamental indicators can also be a good tool to understand how the market develops and predict specific patterns. Nevertheless, the data that Bitcoin provides is very small since the asset was traded in the market for just 10 years. This is why it is always important to understand taking this into account.
One of the indicators that Brookin uses is the realized market capitalization, which was created by Nic Carter and Antoine Le Calvez. The realized market capitalization does not count all the mined cons at the equal current price. Instead, the UTXOs are aggregated and assigned a price based on the BTC/USD market price at the moment in which the UTXOs moved.
Brookin explains that the crossovers between market capitalization and realized market cap could be visualized as golden crosses. This could also be related to new growth in the market. During the time in which the market capitalization is under the realized market cap, we can say that these are the last moments of the bear trend.
He gives the example of what happened back in 2015 and how the market started to recover after it.
The analyst uses an indicator called MVRM, which is known as the market capitalization to realized capitalization. Values beneath 1.0 are considered undervalued. Those above 3.0 are overvalued. Above 4.0 this is a negative inflection for prices.
At the moment, the MVRM for Bitcoin is 0.82 and the lowest point was 0.56. Although Bitcoin is in undervalued territory, there is a place to fall, according to Brookin.
The author of the article uses another indicator, the network transaction volume to the active addresses ratio, which is known as TAAR. This is an equilibrium between bitcoin’s price and fundamentals.
He explains that when TAAR and price are closely distributed, price and fundamentals are in equilibrium. However, when these two indicators are separated one from the other, this means that there is an unbalanced relationship. If the price is higher than the TAAR, the price would go down and be close to the TAAR. Although the gap has been reduced since November, they still have to converge.
After the hard drop experienced in November, the market has entered a normalization process that would allow Bitcoin to improve its performance in the future. Indeed, everything is getting ready for a new bull run in the next months or years. In 2020 Bitcoin will also experience a new halving, which could help the market increase the demand for Bitcoin.