The Last Capitulation - 5 Reasons Why Bitcoin Could Fall to $10,000

Bear markets have historically been challenging for traders, and traditional sets of "reliable" indicators for identifying good entry points fail to predict how long a crypto winter might last.

Bitcoin's (BTC) recent rally above the psychologically important $20,000 level is a sign of bottoming for many traders, but a deeper dive into the data suggests that a short-term relief rally may not be enough to justify a macro-level trend change.

A recent report by cryptocurrency research firm Delphi Digital suggests the need for caution. "We need to see more pain before we can be confident that the market has bottomed," the report said.

While the pain has been felt since bitcoin’s price peaked in November last year, comparing its pullback since then to the 2017 market top suggests further losses are likely in the near term.

In the previous bear market, the price of BTC fell roughly 85% from its peak to its eventual bottom. According to Delphi Digital, if history were to repeat itself in the current environment, it would lead to "lows just above $10,000, another 50% drop from current levels."

The outlook for Ethereum (ETH) is even more bearish, as the price of Ethereum fell 95% from peak to trough during the previous bear market. If the same happens this time around, the price of Ethereum could drop to $300.

According to Delphi Digital,

“The risk of a similar crash repeating itself is higher than most estimate, especially if Bitcoin fails to hold support in the $14K-16K range.”

Subject to oversold conditions

For traders looking for where the current market bottom is, the data showed that "prior major market bottoms coincided with extreme oversold conditions."

As shown in the weekly chart below, BTC’s 14-week RSI recently fell below 30 for the third time in its history, the previous two being near market bottoms.

While some may view this as a good time to re-enter the market, Delphi Digital has a warning for those expecting a "V-shaped" recovery, noting that "in the last two sessions, BTC traded at It’s been months of choppy consolidation before an eventual strong recovery.”

Views on the 200-week simple moving average (SMA) also raises the question of whether the historical support level will hold again.

Bitcoin recently fell below its 200-week moving average for the first time since March 2020. Historically, BTC prices have only traded below this level for weeks during previous bear markets, suggesting a bottom may be found soon.

final surrender

What the market is really looking for now is the eventual capitulation that has historically marked the end of bear markets and the beginning of the next cycle.

While market sentiment is currently at its lowest point since the COVID-19 crash in March 2020, it has not yet reached the depths of despair seen in 2018.

According to Delphi Digital:

"We may need to see some more pain before sentiment really bottoms out."

Weakness in the crypto market has been evident since the end of 2021, but the real drivers behind the market crash include runaway inflation and rising interest rates.

Rising interest rates are often accompanied by market corrections, and given that the Federal Reserve intends to keep raising rates, Bitcoin and other safe-haven assets may correct further.

The final indicator that an eventual capitulation event needs to happen is the BTC supply as a percentage of profits, which hit lows of 40% during previous bear markets.

According to data from Glassnode, the indicator is currently at 54.9%, which adds to the belief that the market could still fall again before it actually bottoms out.