Is a Significant Bitcoin Correction Imminent?

Over the past few days, Bitcoin has experienced a significant dropoff and is now trading below a key fundamental level. The cryptocurrency had its largest pullback since May of this year. On September 4th, it tumbled to below $9.8k, with no sign of stopping. Many crypto analysts are predicting that this is a sign that Bitcoin may be facing a major price correction in the following weeks, if not days. But, is Bitcoin facing a possible death spiral? Here’s what we know.

Bitcoin in 2020

For the better part of this year, Bitcoin has been trading under the cost required by miners to produce it. This has led to the situation that the miners are better off straight buying and selling currencies on the market, instead of investing any effort into the production process.

With several big miners moving large sums of Bitcoin, many analysts saw this as a sign that the currency is facing a potential fall. This makes sense, since Bitcoin’s value is impacted by its participants selling and buying, and a large number of big transactions can have a significant impact on the currency’s value. 

For this reason, many people expected the aforementioned death spiral to happen during this time. However, the better half of 2020 has already passed, and the cryptocurrency handled the halving and got back to its steady growth, with no death spiral occurring during this period. What’s even more interesting is that some analysts are pointing to the fact that the increased Bitcoin transaction fees may have actually helped this currency stay afloat during this turbulent period.

Can we Expect Another Catastrophic Collapse?

If you don’t go by expert predictions, a valuable metric to look at is the network-to-transactions. In short, this ratio compares the currency’s price to the total value being transacted across its network.

The NVT has served as a good predictor of Bitcoin’s price drops and rises over the years. Every time NVT gets hit and turns to black, Bitcoin experiences a fall. If we take a closer look at the peaks and drops over the years, we can see that there have been four collapses since 2018:

  1. February 2018 – Bitcoin dropped a massive 70%, falling from $20,000 to $5800.
  2. December 2018 – The cryptocurrency lost another 50% of its value, falling to just $3200
  3. December 2019 – After a year of steady growth, Bitcoin again dropped significantly, this time to just under $7,000
  4. March 2020 – On March 12th, as a consequence of the global market crash, Bitcoin plummeted to $3,800, losing 62% of its value during this period.

With this in mind, we should mention that NVT recently got hit, which means that some type of significant Bitcoin drop is expected. When we average these collapses, we get to a 58% percent collapse in value across all four collapses.

If the next Bitcoin collapse follows this trend, it means that this cryptocurrency could fall back to just above $5200. That said, given the current political situation and health pandemic in the world, there are just too many factors for analysts to accurately predict just how high or low will Bitcoin’s next drop stop at. Is the recent NVT hit a sign that Bitcoin is facing another collapse? Or, maybe this time Bitcoin will ride through it and start a comeback?