Bitcoin - When in doubt, zoom out.
Do you believe in the long-term future of BTC?
Having rallied to 69k for a top in late 2021 from COVID-19 panic lows set in March 2020, BTC has since retraced around 50 percent to the lows of 33.5k set on January 24th, 2022. In the current environment of endless short-term bulls and bears, it is easy to forget the initial reason why we have invested in the first place, the exponential long-term trajectory of this decentralized, secure, and scarce asset that attracted us to this space.
Although cliched, ‘When in doubt, zoom out’ is an important principle, especially If you’re a long-term believer of bitcoin. In this post, I present three scenarios for BTC to play out in the medium term. I will also discuss how I am navigating this uncertain market.
Bullish Scenario - BOOM before DOOM
In this bullish scenario, we would see a breakout of the current range of 45k in the next couple of months, with a potential higher-high set at the mid-50ks for a base for another leg higher and a parabolic breakout above our macrocycle highs of 69k towards 120k+ or so, towards the end of the year or early 2023.
This parabolic run could be similar to November 2017 bull market top. It would likely be followed by a heavy 70%+ correction, falling below the Gaussian channel depicted, and bottoming at around the 200 Week Moving Average, which has marked the bottom for the past three market cycles.
Fundamentally, this would play out based on lengthening-cycle, diminishing returns theory, that bitcoin cycles lengthen with time, thus, taking longer than the 4 years predicted by many analysts using stock to flow model. You can read more about the Lengthening cycle theory here:
beincrypto.com/bitcoin-btc-cycles-are-lengthening-hypothesis-confirmed/ - Not affiliated.
Note, a 70% correction is a conservative prediction compared with the past blow-off top cycle corrections which have been 95%, 90%, and 85% respectively. This coincides with 120k or so being a conservative figure for a market cycle top.
So, why might there be diminished returns? Well, there are many reasons for this.
Firstly, the BTC market is vastly more institutional. We can see that 80% of trading volume is now Institutions and only 20% is retail as of 14th March 2022. Compare this to the 2017 bull run, where over 90% was retail. Institutional investors in markets tend to reduce volatility.
Secondly, and most importantly, BTC has a magnitude market cap of 800B compared with 2017 and 2013. Larger asset markets tend to be less volatile than smaller asset markets. Compare a small-cap or micro-cap stock to a Large cap dividend-paying stock for example.
Sideways scenario - Consolidation before BOOM.
For the sideways consolidation scenario, we would see the price consolidate within the current macro range lows of 28.8k and 69k until the price breaks out to the upside to new all-time highs. This range-bound price movement could see many relief rallies and breakdowns (some being below the Gaussian channel for the 5 day depicted) adhering to the macrocycle lows and highs.
Because the 200 Week moving average is up-trending, it would eventually catch up to the sideways moving bitcoin price, given enough time. Depending on the moving average position, it could test it later this year, or even early 2023. This test of the 200W MA would mark the bottom of the 4-year cycle.
An important distinction for the breakout is that the all-time high blow-off top, will not occur until AFTER the 2024 halving event and not during the current four-year cycle. Historically halving events have preceded major bull cycle market runs in the following year, as can be seen with 2016 and 2020. It assumes that 69k was the market cycle peak and that four-year market cycle theory holds and cycles do not lengthen.
Why could this consolidation occur? Firstly, it is historically plausible. Note, we did see a major consolidation during the 2018 bear market at around 6K before the major market capitulation at 3k.
Secondly, institutions have largely bought into bitcoin in or around the 30k region. As this is the cost basis of many institutional investors, this may serve to prop up markets primarily through psychological means.
The mass institutional adoption of bitcoin and vastly increased market cap could also shrink volatility more than expected, perhaps to the desired 50-55% to keep it in the range.
Bearish Scenario - DOOM before BOOM.
In this scenario, we would see an eventual capitulation below the macro lows at around $30,000 with a downside target to the 200 moving average on a more aggressive timeframe.
A major catalyst for this could be a black swan style event, e.g. economic collapse of the bond market, world war 3. Alternatively, it may slowly bleed down to the 200-week moving average. The former would likely result in a faster and deeper correction price target in the low 20ks or even wicks below, with a rapid bounce, and the latter likely result in a shallower correction to the mid 20k region. This is due to the nature of the 200-week moving average, trending up with time.
This would be followed by a consolidation phase and trend higher going into the 2024 halving, before a blow-off top to new all-time highs. Similar to the 'sideways scenario', this assumes that the four-year cycle theory holds, meaning that 69k was the top for the current market cycle.
The thesis for the price being bearish over the medium term fits with past bull market collapses such as 2018, where a protracted bear market usually follows in the year after a parabolic run such as 2017.
So you are predicting it will go up, down, or sideways?
YES. Noone on TradingView, has a crystal ball, regardless of how skilled they are. Trading and investing are inherently both, probability-based games, and to be successful, it is important to plan and prepare for multiple scenarios, whilst also holding a primary thesis for what the market will do.
Buy Low - Sell High: The 200 Week Moving average and Gaussian Channel
A common principle for long-term investors of an increasing asset is the concept of 'Buying low and Selling High'. The beauty of this lies in that this is ambiguous to market direction, and encourages investors to buy at opportune times.
There are many ways to do this, using technical, fundamental, and quantitative analysis. One way, that I propose here is using the Gaussian Channel and 200 Week moving average.
Take a look at the chart for 2014, 2018, and 2020 corrections:
The chart illustrates the past price action of bitcoin returning to the 200 week moving average after major parabolic moves and falling below the Gaussian channel range.
This represents a potential accumulation range from the gaussian channel where if one would have maximized their returns if they had bought, and has marked the bottom (for 200-week ma) or 50% from the bottom (for the Gaussian channel lower line) of past bear markets. (illustrated).
How am I navigating the markets? Not financial advice.
If you liked this post, please consider taking a look at some of my free scripts, I love developing software and apps in my spare time, and trading / investing is a passion of mine.
This post is NOT financial advice. Please consult your financial advisor before making any investment decisions, this is for entertainment and education purposes only. Thanks for reading!
Having rallied to 69k for a top in late 2021 from COVID-19 panic lows set in March 2020, BTC has since retraced around 50 percent to the lows of 33.5k set on January 24th, 2022. In the current environment of endless short-term bulls and bears, it is easy to forget the initial reason why we have invested in the first place, the exponential long-term trajectory of this decentralized, secure, and scarce asset that attracted us to this space.
Although cliched, ‘When in doubt, zoom out’ is an important principle, especially If you’re a long-term believer of bitcoin. In this post, I present three scenarios for BTC to play out in the medium term. I will also discuss how I am navigating this uncertain market.
Bullish Scenario - BOOM before DOOM
In this bullish scenario, we would see a breakout of the current range of 45k in the next couple of months, with a potential higher-high set at the mid-50ks for a base for another leg higher and a parabolic breakout above our macrocycle highs of 69k towards 120k+ or so, towards the end of the year or early 2023.
This parabolic run could be similar to November 2017 bull market top. It would likely be followed by a heavy 70%+ correction, falling below the Gaussian channel depicted, and bottoming at around the 200 Week Moving Average, which has marked the bottom for the past three market cycles.
Fundamentally, this would play out based on lengthening-cycle, diminishing returns theory, that bitcoin cycles lengthen with time, thus, taking longer than the 4 years predicted by many analysts using stock to flow model. You can read more about the Lengthening cycle theory here:
beincrypto.com/bitcoin-btc-cycles-are-lengthening-hypothesis-confirmed/ - Not affiliated.
Note, a 70% correction is a conservative prediction compared with the past blow-off top cycle corrections which have been 95%, 90%, and 85% respectively. This coincides with 120k or so being a conservative figure for a market cycle top.
So, why might there be diminished returns? Well, there are many reasons for this.
Firstly, the BTC market is vastly more institutional. We can see that 80% of trading volume is now Institutions and only 20% is retail as of 14th March 2022. Compare this to the 2017 bull run, where over 90% was retail. Institutional investors in markets tend to reduce volatility.
Secondly, and most importantly, BTC has a magnitude market cap of 800B compared with 2017 and 2013. Larger asset markets tend to be less volatile than smaller asset markets. Compare a small-cap or micro-cap stock to a Large cap dividend-paying stock for example.
Sideways scenario - Consolidation before BOOM.
For the sideways consolidation scenario, we would see the price consolidate within the current macro range lows of 28.8k and 69k until the price breaks out to the upside to new all-time highs. This range-bound price movement could see many relief rallies and breakdowns (some being below the Gaussian channel for the 5 day depicted) adhering to the macrocycle lows and highs.
Because the 200 Week moving average is up-trending, it would eventually catch up to the sideways moving bitcoin price, given enough time. Depending on the moving average position, it could test it later this year, or even early 2023. This test of the 200W MA would mark the bottom of the 4-year cycle.
An important distinction for the breakout is that the all-time high blow-off top, will not occur until AFTER the 2024 halving event and not during the current four-year cycle. Historically halving events have preceded major bull cycle market runs in the following year, as can be seen with 2016 and 2020. It assumes that 69k was the market cycle peak and that four-year market cycle theory holds and cycles do not lengthen.
Why could this consolidation occur? Firstly, it is historically plausible. Note, we did see a major consolidation during the 2018 bear market at around 6K before the major market capitulation at 3k.
Secondly, institutions have largely bought into bitcoin in or around the 30k region. As this is the cost basis of many institutional investors, this may serve to prop up markets primarily through psychological means.
The mass institutional adoption of bitcoin and vastly increased market cap could also shrink volatility more than expected, perhaps to the desired 50-55% to keep it in the range.
Bearish Scenario - DOOM before BOOM.
In this scenario, we would see an eventual capitulation below the macro lows at around $30,000 with a downside target to the 200 moving average on a more aggressive timeframe.
A major catalyst for this could be a black swan style event, e.g. economic collapse of the bond market, world war 3. Alternatively, it may slowly bleed down to the 200-week moving average. The former would likely result in a faster and deeper correction price target in the low 20ks or even wicks below, with a rapid bounce, and the latter likely result in a shallower correction to the mid 20k region. This is due to the nature of the 200-week moving average, trending up with time.
This would be followed by a consolidation phase and trend higher going into the 2024 halving, before a blow-off top to new all-time highs. Similar to the 'sideways scenario', this assumes that the four-year cycle theory holds, meaning that 69k was the top for the current market cycle.
The thesis for the price being bearish over the medium term fits with past bull market collapses such as 2018, where a protracted bear market usually follows in the year after a parabolic run such as 2017.
So you are predicting it will go up, down, or sideways?
YES. Noone on TradingView, has a crystal ball, regardless of how skilled they are. Trading and investing are inherently both, probability-based games, and to be successful, it is important to plan and prepare for multiple scenarios, whilst also holding a primary thesis for what the market will do.
Buy Low - Sell High: The 200 Week Moving average and Gaussian Channel
A common principle for long-term investors of an increasing asset is the concept of 'Buying low and Selling High'. The beauty of this lies in that this is ambiguous to market direction, and encourages investors to buy at opportune times.
There are many ways to do this, using technical, fundamental, and quantitative analysis. One way, that I propose here is using the Gaussian Channel and 200 Week moving average.
Take a look at the chart for 2014, 2018, and 2020 corrections:
The chart illustrates the past price action of bitcoin returning to the 200 week moving average after major parabolic moves and falling below the Gaussian channel range.
This represents a potential accumulation range from the gaussian channel where if one would have maximized their returns if they had bought, and has marked the bottom (for 200-week ma) or 50% from the bottom (for the Gaussian channel lower line) of past bear markets. (illustrated).
How am I navigating the markets? Not financial advice.
- Bitcoin will at some point, retrace to the 200 week moving average. It could be later this year or only after another bullish move higher has occurred further down the track.
- There will be periods that BTC will remain below the Gaussian channel of the 5 day, which represent undervalued prices.
- At the time of writing, the accumulation range is between 20k and 38k. I am accumulating in this range, with buy orders which increase in size as we approach 20k, keeping order size smaller towards the top of the range.
- I have a current smaller position in BTC to hedge the opportunity cost of missing out on a shorter-term bull run this year.
If you liked this post, please consider taking a look at some of my free scripts, I love developing software and apps in my spare time, and trading / investing is a passion of mine.
This post is NOT financial advice. Please consult your financial advisor before making any investment decisions, this is for entertainment and education purposes only. Thanks for reading!
Feragatname
Bilgiler ve yayınlar, TradingView tarafından sağlanan veya onaylanan finansal, yatırım, işlem veya diğer türden tavsiye veya tavsiyeler anlamına gelmez ve teşkil etmez. Kullanım Şartları'nda daha fazlasını okuyun.