Despite Bitcoin's recent gains of nearly 15% this month, some industry experts remain unconvinced that the largest cryptocurrency has escaped the bear market that began in October, given that it still lags 40% behind its record high. Some forecasters have even predicted a potential drop to as low as $40,000, which would represent a 70% decline from its all-time high. According to Bitcoin analyst James Check, such a move, although not impossible, would be statistically extraordinary.
After surging to over $126,000 in October, Bitcoin plummeted more than 50% to around $60,000 in February before stabilizing, and was trading near $78,000 on Friday. Check argues that the predictions of bearish forecasters warrant closer examination. Check references the Bitcoin Mean Reversion Index, a composite model that averages multiple key valuation metrics, including the 200-week moving average, realized price, power law trend, and several volume-weighted average price measures.
The index ranks Bitcoin's price on a historical percentile basis. When modeled at $40,000, Bitcoin registers as a '0.4 event,' meaning it would fall in the 0.4th percentile of all daily closes. Check notes that this would be equivalent to Bitcoin trading below $2 in 2011 on a relative basis.
In contrast, the current price sits around the 31.5th percentile, historically weak but within normal correction ranges. Check adds that while there is no zero probability in markets, a drop to $40,000 would be a near-unprecedented outcome.