The rainbow chart analysis of Bitcoin since 2012

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Bitcoin's 19th million coin was mined recently, increasing the circulating coins proportion to 90% of the total supply. Besides, there is a common pattern known as the rainbow chart which displays the logarithmic regression path bitcoin follows. The cyclical behaviour of the security can be explained by the following facts :

• Bitcoin tends to be overall bullish because the supply is limited and the amount of coins being released in circulation is halved every four years. Each block mined now provides a reward of 6.25 BTC.
  
  A total of 210,000 blocks are mined between each halving dates, with a more visible aspect of the cycles : From the 1st block to the 70,000th block, Bitcoin appears to be in a bullish phase, from the 70,001st block to the 140,000th block a bearish phase and from the 140,001st block to the 210,000th block a sideways phase.
  
  Bitcoin is the most dominant cryptocurrency. Indeed, it influences the whole cryptocurrency market due to its market capitalization. It's dominancy is also cyclical and since 2016, it falls below 40% exactly when we are entering the bearish phase (>140,000 blocks being mined) while the bullish phase is catarterized by a dominance around 70% of the total market.
  
  The average drawdown during an era (Between two halving dates) is 80%.
  

We are currently at the 3rd halving era which occurred on May 11th 2020, more precisely within the bearish phase. The crossover between the 140,000th block mining date and the lows logarithmic regression indicate 18,000 USD per bitcoin. The high of the era was 69,000 USD and considering an 80% drawdown sets 13,800 USD as minimum price. The low of the era shall be in the interval between 10,000 - 20,000 USD with our prediction at 18,000.

(These illustrations are just for educational purposes and are not financial advices)

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تعليق

Another explanation to bitcoin's cyclical behaviour painted by the rainbow chart are the MVRV bands which stands for Market-Value-to-Realized-Value.
By leveraging the Bitcoin's time chain, which holds a public record of all Bitcoin transactions that were ever made, Realized-Value looks to quantify the total United States dollar (USD) value of all bitcoin that existed at the last time those coins were moved on-chain.

The MVRV ratio is calculated by dividing the total bitcoin market value (MV) by its realized value (RV). Therefore, the metric represents the extent in which the current bitcoin market valuation is overextended beyond (values >1) or actually at a discount (values <1) compared to the holders’ aggregated cost base.

From the MVRV ratio we obtain the MVRV z-score, which first calculates the difference between the total bitcoin market value and its realized value, and then divides that by the standard deviation of the market valuation — a common statistical procedure called “standardization.” The MVRV z-scores, therefore, represent the number of standard deviations that each bitcoin market valuation is increased or decreased against its realized value (Remember z-score >1 means overextended and z-score <1 discount)

These “MVRV bands” show the price that bitcoin would have if it were to reach those MVRV z-score levels. The actual fair value (as today) of bitcoin (MVRV z-score = 0) is between 10,000 - 20,000 USD per coin.

(Sources : Coin Metrics)

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The 18k target was reached sooner than expected. Many reasons explain this :
- The collapse of Luna and its domino effect.
- The stable coin crisis.
According to the MVRV score (lookintobitcoin.com/charts/mvrv-zscore/) Bitcoin is now trading at fair value. This could represent a great buying opportunity, however it is important to have in mind that past performances are not indicators of future results. The bear market based on halving cycles will end around October of this year therefor we still have enough room for more downward trend.