Source: The DeFi
Compiled by: Baihua Blockchain
Momentum and on-chain data
200-week moving average
As shown in the figure, Bitcoin typically bottoms when its price reaches (or falls below) the critical 200-week moving average (200 WMA) during bear markets, which is currently at $43,617.
At the end of 2022, when Bitcoin bottomed out, the 200 WMA was $23,757.
At the bottom of the 2018 bear market, the 200 WMA was $3,158.
Where will the 200 WMA be in the next bear market?
This depends on future price trends, but we expect it to ultimately fall within the range of $60,000 to $70,000.
Data Source: The DeFi Report, Investing.com
Realized Price
The realized price is a proxy indicator for the average cost of each Bitcoin currently in circulation.
It is derived by summing the market prices at the last on-chain movement for each Bitcoin currently in circulation (technically every UTXO).
Limitations: This indicator does not consider Bitcoins held in ETFs or by centralized exchanges (which account for 18.7% of circulating supply).
Nevertheless, this indicator has proven reliable in identifying Bitcoin bottoms, as prices often tend to the realized price during bear markets and fall below that price under extreme conditions.
As shown in the figure, this pattern has been consistent in each cycle.
The current realized price is $44,576 and is still rising.
We expect the realized price to continue rising.
Reason: When long-held Bitcoins are sold, the realized price can significantly increase. For example, if someone transfers a Bitcoin that last moved at $20,000 to a buyer today, it will increase the realized market value by $77,000, thereby pushing up the realized price.
Where will the realized price go?
This depends on price trends and the behavior of long-term holders, but we estimate it will rise to around $60,000 by the end of the year.
Data Source: Glassnode, (DeFi Report)
Cost to mine one Bitcoin
Bitcoin is a digital commodity, but its trading cycle resembles that of physical commodities like oil.
Therefore, during bear markets, when production costs exceed the price of newly issued Bitcoins, market prices often bottom out.
Reason: When prices fall below production costs, many miners have to shut down machines or sell their inventory of Bitcoins to cover operating expenses. This often occurs after significant drops in Bitcoin prices, so "miner capitulation" often marks the bottom.
As shown in the figure, the average cost to mine one Bitcoin is currently around $90,000 (according to Blockware calculations), with Macro Micro estimating at $91,700.
Data Source: Blockware Solutions
Why are costs so high?
Hashrate surge: The hashrate nearly doubled in the past year, leading to increased competition and higher costs for mining each block reward.
Data: Glassnode, DeFi Report
Bitcoin halving: The halving in April last year reduced the number of newly issued Bitcoins by half, doubling the resources (energy costs) required for miners to mine one Bitcoin.
We also calculated the direct energy costs of the top ten publicly listed Bitcoin miners:
Conclusion:
The largest and most scalable miners have a weighted average cost of mining one Bitcoin that is far below the network average due to lower energy costs. When market prices approach these companies' production costs, we believe Bitcoin will bottom out, and at that time, the price is expected to align roughly with the realized price and the 200-week moving average.
Relative Strength Index (RSI)
RSI is a momentum oscillator that measures the speed and change of price movements in the market.
RSI > 70: The asset may be overbought.
RSI < 30: The asset may be oversold.
As shown in the figure (blue arrows), the Bitcoin RSI fell below 30 four times in the past year, each marking a reversal in price trends.
When market prices converge with the 200 WMA, realized price, and mining costs, we look for an RSI below 30 as confirmation of oversold conditions and an opportunity to buy Bitcoin at fair value.
Qualitative signals
In addition to the four main data points above, we also look at the following qualitative signals to identify Bitcoin bottoms:
Hidden leverage exposure: In the previous cycle, the GBTC premium, the Terra/Luna collapse, and the FTX fraud exposed leverage issues.
Protocol hacks/centralized exchange failures.
"Coinless" individuals are active again: Critics are becoming more vocal.
Crypto Twitter becomes quiet: tourists leave, community engagement declines.
Views on crypto podcasts and media decrease.
Advertising and excessive spending on crypto conferences decrease.
Coinbase's new users and active users have significantly declined.
Given the relationship between the Trump administration and the crypto industry during this cycle, more negative news/headlines are expected during bear markets as political opponents take the opportunity to voice their opinions.
