Bitcoin’s Latest Collapse Mirrors the 2014 Bear Market

The yearlong selloff in cryptocurrencies deepened over the weekend, erasing more than $40 billion of market value in less than 24 hours. Investors, analysts and general observers are now struggling to understand why.

According to one long-time observer, bitcoin’s recent price collapse is almost identical to the onset of the bear market all the way back in August 2014.

Evaluating Bitcoin’s Latest Reversal

Bitcoin’s recent price collapse occurred in two waves, beginning with a 5% drop in the span of about five hours. The second, more intense bout of selling pressure wiped 7.5% from the currency’s value. In the process, bitcoin’s value plunged below $6,700 for the first time since early April.

According to Tony Vays, host of the Crypto Scam podcast, bitcoin’s technical indicators are almost identical to the August 2014 period when the cryptocurrency had entered a protracted bear market. The analysis extends far beyond price to include the three most popular oscillators: RSI, MACD and Stochastics.

In Vays’ evaluation, bitcoin will likely drop below $5,000 for the first time in around eight months.

Bitcoin shows only tepid recovery potential on Tuesday with prices crossing above $6,900.

Factors Behind the Collapse

Though useful, Vays’ analysis does not explain the root cause of bitcoin’s epic reversal. Some analysts have pinned the decline on the hack of South Korea’s Coinrail, where some $40 million worth of digital currency was compromised. Others have pointed to the CFTC’s widening probe into four leading cryptocurrency exchanges. Though potential factors, these headlines ran parallel to Sunday’s price collapse.

A more plausible explanation is that long-term holders of bitcoin are giving into the pressure. There’s some research to support this claim.

Blockchain research company Chainanalysis has carefully evaluated bitcoin’s price reversal since December and has concluded that roughly $30 billion worth of digital currency has been dumped by the so-called “hodlers.” However, that only covers the December to April period.

Based on recent price action, there’s reason to believe that the hodlers are still relinquishing their positions. Since bottoming in February, bitcoin has attempted two major reversals only to fall short each time. Prices peaked around $11,700 in late February and then again in early March but have since failed to come close to matching those levels.

Let’s also not forget about the elephant in the room: trade volume (or lack thereof). Say what you will about cryptocurrency exchanges inflating their turnover, bitcoin transactions are down markedly over the past three months. In fact, we recently saw a 55% spike in turnover as traders offloaded their positions (case in point: that spike occurred between Saturday and Monday).

There’s strong reason to believe that bitcoin’s recent downturn is here to stay for much longer than many had predicted. The good news is the cryptocurrency’s value proposition has only increased over the past six months thanks to institutional adoption, Lightning Network upgrades and continued growth of blockchain enterprise. In a market that is heavily influenced by sentiment, the facts will set you free.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi