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 are even predicting a potential drop 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 peaking at over $126,000 in October and then sliding more than 50% to around $60,000 in February before stabilizing, Bitcoin was trading near $78,000 on Friday. Check suggests that the predictions of the bears warrant closer examination. He references the Bitcoin Mean Reversion Index, which is a composite model averaging multiple key valuation metrics, including the 200-week moving average, realized price, power law trend, and several volume-weighted average price measures. This 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, today's price is around the 31.5th percentile, which is historically weak but within the normal range for corrections. Check adds that while there's no zero probability in markets, reaching $40,000 would be a near-unprecedented outcome.