Bitcoin, like many other cryptocurrencies, has taken a beating during the most recent crypto winter. But with spring right around the corner, the crypto market is heating up.
BTCUSD was rejected after briefly making it above $26K per coin today. But above this barrier, the bear market could be officially cancelled. Here’s a closer look at why.
The Painstaking Process Of Picking Bitcoin Bottoms
Bottoms in markets are challenging to call, and aren’t confirmed until long in hindsight. But this also means as an investor or trader you could be left in the rear view mirror of the next bull train to new all-time highs.
A vast amount of effort goes into technical tools designed to tell analysts if an asset has bottomed or topped. Bitcoin, as volatile as it is, makes things even more confusing, but there are some tools which show some success.
For example, the “Pi Cycle Top Indicator” has famously called each crypto bull run peak. No such tools has a perfect track record on bottoms, but because of the proof-of-work system behind Bitcoin, we could have some idea of a theoretical price floor.
The chart below depicts the cost to produce each BTC, which has been flatlining for months, and for the first time ever forming a longer-term base. This type of base-building is evident in commodities, which frequently bottom around the cost of production. Why would Bitcoin be so different?
Moving above the cost of production has put in past bottoms | BTCUSD on TradingView.com
Why Cracking $26K Could Cancel Crypto Winter
Even Satoshi knew that prices of commodity-like assets would “gravitate” toward the cost to produce after supply sufficiently outweighs demand.
“The price of any commodity tends to gravitate toward the production cost. If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling more. At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price,” Satoshi said in a 2010 BitcoinTalk forum thread.
Bitcoin has spent a considerable amount of time grinding against this floor without breaking it. The cost of production tool created by Charles Edwards has an upper and lower threshold. The upper threshold lies just above $26,000, making the key level especially important from a cost of production perspective.
Above this level in the past has resulted in some of the largest bull runs in recent years. If BTCUSD can cleanly crack above $26K, it could be the last time the top cryptocurrency ever trades below $20K again. It also could officially cancel crypto winter and give way to an extra hot crypto summer.