Last Updated: 6 December 2022
The Rational Root is currently causing a furore on Twitter with his sharp on-chain analyses on bitcoin. This time, the Dutch(!) analyst is at it again, predicting that bitcoin may have seen the bottom of the 2022 bear market. The analyst bases this on the percentage of all bitcoin that changed addresses around a certain price.
The big question, of course, is how exactly Root does this. The answer is fairly simple. In 2018, bitcoin reached a bottom around the rate for which about 4 per cent of all bitcoin changed addresses. You can think of that peak as a kind of final capitulation that rises above all other price points.
— Root 🥕 (@therationalroot) December 5, 2022
It is exactly that capitulation that we are now seeing around the $16,000 price. Indeed, in 2022, it was a total of 7.5 per cent of all bitcoin in circulation and in 2018, the peak was only 4.1 per cent high.
The only thing you can argue against this story is that this spike came about the moment FTX went down the drain. With the collapse of the stock market, many people pulled their bitcoin into their own wallets, causing a lot of transactions to take place around that price. There is no certainty, but it is an interesting statistic.
The moment bitcoin reached this point is particularly striking. It is now about 4 years since bitcoin reached its absolute bottom of that bear market in December 2018. Until now, the bitcoin price has been moving mostly in the rhythm of halvings, which happen about every 4 years.
We speak of a halving when the reward for bitcoin miners halves. This happens after every 210,000 blocks. In 2024, we mine block 840,000 and the reward for miners goes through half again. Now miners will still get 6.25 bitcoin per block and after that only 3.125 bitcoin.
After the halvings, suddenly significantly less bitcoin comes into circulation, so the price often rebounds after this moment. For this reason, bitcoin’s cycles seem to last around 4 years each time. So in that respect, it will be a while before the next big rebound.