Bitcoin: A long term perspective (UPDATED)
Updated
*DISCLAIMER* - This post is just for fun. The scenario I am going to lay out in the following write up may or may not come to be true. If it does, I am not a financial guru. If it doesn't... I am, definitely not a financial guru. Layman's language will be used to address as wide an audience as possible, please to do not take offence.
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Hello all! I'm doing an updated, more in-depth analysis/tea-leaf prediction on the hows and whys of where or where not Bitcoin is headed over the next few years. I am going to attempt to explore all possibilities both bullish and bearish so please 'bear' with me, this is going to be a long post.
First things first, long term price projections are anyone's guess. There is really no way to predict with any slight degree of accuracy where the price will be on future date X. The only thing that is certain is that the price will be somewhere not expected by the majority and anyone who guesses correctly got lucky. There is no skill involved.
--------------------------------------------------------------------------------------------------------------------------------------------------------------
Now all that is out of the way, lets examine the chart above.
There are three main dates I want you to take from this chart (+/- a few days because cannot pinpoint on weekly candles)
Nov 2012
July 2016
May 2020
From the first halving to the peak of the 2013 bull market it took 365 days.
From the second halving to the peak of the 2017 bull it took 518 days, this represents a 42 % increase in time (rounded up from 41.92XXX %)
Assuming this compounding increase of time will be true a third time, we can estimate that it will be roughly 730 days after the halving of May 2020, until the peak of the next bull market. That puts the next mania in and around May of 2022. Keep in mind we can over or under-shoot this time frame with the former being more likely in my opinion. As such, +/- 12 months to the date of May 2022.
What is a Bitcoin block reward halving?
For those who don't know, these are the dates on which the rate of inflation (inflation = increase of supply) of Bitcoin is halved. They occur roughly every 4 years or every 210'000 blocks. So why does this matter for the price? In my opinion it is an important catalyst for a spree of buying because it brings with it the reminder that Bitcoin is getting increasingly rarer.
With each cycle, the volatility reduces, and the time it takes to reach climax gets longer. This can be seen by the arc of each movement being longer or more stretched out on the X axis and having a less steep angle of attack on the Y axis. Why? Because the higher Bitcoin goes the more $ is required to move it. In theory, if BTC is to reach the status of a globally accepted store of value, it implies a market cap of several trillion and it's % 'swings' per day will be less than 1%.
The Mean
As seen on the chart above, the mean price is represented by the curved, green dotted line. This is a rough estimate I made by taking the average price of previous bubbles.
((top + bottom) ÷ 2) = mean price of the bubble // To find our point we measure the time it takes from top until bottom and divide by 2 // Create a vertical line at the middle of the time frame // Where the average price and halfway time vertical intersect, this is our point // Repeat for all three bubbles (Assuming 3k is bottom for the current bubble) and we are able to plot the mean price over time.
It does look incorrect visually speaking as the inclination is to think the average price should 'divide' the price in half throughout Bitcoins history. The fact is that because Bitcoin pumped so high so fast throws it off.
A, B & C - Trend lines
Labeled above as A, B & C are the trend supports Bitcoin respects during it's bull runs. One way we can can watch out for the next bull market is when BTC starts to make a series of higher highs and higher lows that respect a definite line as support. It will grind up along the line, testing it as support several times along the way before taking a steep jump away from the line to start a parabolic run.
What we are looking for in this case is trend line 'D' to reveal it'self. For a safer investment strategy, one can sit the market out until it appears before buying in.
Weekly moving averages
Please refer to the colour coded reference on chart for clarification. I see a lot of people saying that if BTC breaks the 200 week moving average that it is game over, I disagree. What these people are overlooking is that we also have a 300 week moving average below, a 400 week moving average. 500, 600 & 1000 week moving averages, so the idea that one must hold or BTC is ded.... is just plain silly.
MA's are a powerful tool in the arsenal of a trader/investor. For those who don't know: A moving average is nothing more than a smoothed version of the price compromised of the average price from X candles on any given time frame, X being the input.
For example;
MA 20 // 1W // Each point contains the average from the previous 20 weeks of price action
MA 150 // 1D // Each point contains the average from the previous 150 days of price action
MA 200 // 1H // Each point contains the average from the previous 100 hours of price action
MA 500 // 5M // Each point contains the average from the previous 2500 minutes of price action (500 x 5)
And so on and so forth.
X, Y & Z Climax points + Next bubble potential targets as a result
These are the points at which the price breaks above the mean and goes near vertical, not much else needs to be said about that. People are often disinterested if you don't talk price so here is an observation (I am not implying this will be the case).
Coincidentally, the projected trajectory of next mania intersects the mean at about $50'000. This is a very important price level psychologically speaking because it means a cap of $1'000'000'000'000 ($1 Trillion). Humans like round numbers, 50k is very round. To get to 100k from 50k, as implied by the breach of the green dotted line (the mean) we need another $1 Trillion in market cap to be added... is this likely? Honestly who knows, it's Crypto.
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And now for the BEARISH scenario - The part no one wants to hear
From a TA and FA standpoint there is no real reason to be overly bearish in the long run. But for arguments sake I will bring some things to mind that could bring the bearish scenario into play.
Black Swan Events // Self explanatory why these are bearish.
Regulation // If Governments or banks decide they don't like Bitcoin or any non-state run crypto, they can simply make it illegal to use. They cannot stop you from using it but they can prosecute you for doing so.
Recession // This will be Bitcoins first real test as we are heading into the next global recession at the time this publication. Bitcoin was forged in the fires of the last recession, will it be able to stand tall in this one? Time will tell.
I do see some people saying that the pieces are being put in place for the big boys to pump Bitcoin to the moon during this next recession. There is a chance of course but it is in my opinion quite delusional for two reasons.
1) It makes zero sense to hedge in the most risky asset class in existence during times of high risk in the traditional markets.
2) Bitcoin whales are sooo far ahead of the curve in terms of accumulation that if Institutes were to pump Bitcoin to hedge their wealth during the recession that whales could obliterate their wealth by dumping. Remember, the higher Bitcoin goes the more powerful they are in this regard.
Outdated // Some new technology could be so much better than Bitcoin by several orders of magnitude that people decide to ditch Bitcoin in favour of the new coin. Unlikely, but unwise to rule out. This is why diversification into projects aiming to solve on chain scaling is not a bad idea in my opinion.
Difficulty // Bitcoin difficulty adjustment happens every 2016 blocks. That means at the average price of blocks (10 minutes) it takes 2 weeks for the adjustment to take place. If there is a sufficient drop off in the network hash rate (we saw a significant % drop during the BCH war but not enough to cause long term damage) the difficulty could be so great relative to hash power that the Bitcoin protocol effectively freezes. In theory the network could hardfork to an adjusted difficulty rate but what is to say the same thing couldn't happen again?
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Conclusion
We live in exciting times. We are perhaps on the cusp of a new type of decentralized society and I am cautiously optimistic going forwards. Regardless of the price or getting rich, if this experiment succeeds humanity has a brighter future ahead, potentially with a bottom up structure. That being said, I still think we are 18-24 months out from the beginning of the next bull market. Be patient, see the bigger picture and accumulate accordingly.
Thank you for taking your time to read my ramblings (if you made it this far :P). I really do appreciate it!
P.S - Please leave feedback in the comments and perhaps even coin suggestions that I can do future posts on similar to this.
Peace.
--------------------------------------------------------------------------------------------------------------------------------------------------------------
Hello all! I'm doing an updated, more in-depth analysis/tea-leaf prediction on the hows and whys of where or where not Bitcoin is headed over the next few years. I am going to attempt to explore all possibilities both bullish and bearish so please 'bear' with me, this is going to be a long post.
First things first, long term price projections are anyone's guess. There is really no way to predict with any slight degree of accuracy where the price will be on future date X. The only thing that is certain is that the price will be somewhere not expected by the majority and anyone who guesses correctly got lucky. There is no skill involved.
--------------------------------------------------------------------------------------------------------------------------------------------------------------
Now all that is out of the way, lets examine the chart above.
There are three main dates I want you to take from this chart (+/- a few days because cannot pinpoint on weekly candles)
Nov 2012
July 2016
May 2020
From the first halving to the peak of the 2013 bull market it took 365 days.
From the second halving to the peak of the 2017 bull it took 518 days, this represents a 42 % increase in time (rounded up from 41.92XXX %)
Assuming this compounding increase of time will be true a third time, we can estimate that it will be roughly 730 days after the halving of May 2020, until the peak of the next bull market. That puts the next mania in and around May of 2022. Keep in mind we can over or under-shoot this time frame with the former being more likely in my opinion. As such, +/- 12 months to the date of May 2022.
What is a Bitcoin block reward halving?
For those who don't know, these are the dates on which the rate of inflation (inflation = increase of supply) of Bitcoin is halved. They occur roughly every 4 years or every 210'000 blocks. So why does this matter for the price? In my opinion it is an important catalyst for a spree of buying because it brings with it the reminder that Bitcoin is getting increasingly rarer.
With each cycle, the volatility reduces, and the time it takes to reach climax gets longer. This can be seen by the arc of each movement being longer or more stretched out on the X axis and having a less steep angle of attack on the Y axis. Why? Because the higher Bitcoin goes the more $ is required to move it. In theory, if BTC is to reach the status of a globally accepted store of value, it implies a market cap of several trillion and it's % 'swings' per day will be less than 1%.
The Mean
As seen on the chart above, the mean price is represented by the curved, green dotted line. This is a rough estimate I made by taking the average price of previous bubbles.
((top + bottom) ÷ 2) = mean price of the bubble // To find our point we measure the time it takes from top until bottom and divide by 2 // Create a vertical line at the middle of the time frame // Where the average price and halfway time vertical intersect, this is our point // Repeat for all three bubbles (Assuming 3k is bottom for the current bubble) and we are able to plot the mean price over time.
It does look incorrect visually speaking as the inclination is to think the average price should 'divide' the price in half throughout Bitcoins history. The fact is that because Bitcoin pumped so high so fast throws it off.
A, B & C - Trend lines
Labeled above as A, B & C are the trend supports Bitcoin respects during it's bull runs. One way we can can watch out for the next bull market is when BTC starts to make a series of higher highs and higher lows that respect a definite line as support. It will grind up along the line, testing it as support several times along the way before taking a steep jump away from the line to start a parabolic run.
What we are looking for in this case is trend line 'D' to reveal it'self. For a safer investment strategy, one can sit the market out until it appears before buying in.
Weekly moving averages
Please refer to the colour coded reference on chart for clarification. I see a lot of people saying that if BTC breaks the 200 week moving average that it is game over, I disagree. What these people are overlooking is that we also have a 300 week moving average below, a 400 week moving average. 500, 600 & 1000 week moving averages, so the idea that one must hold or BTC is ded.... is just plain silly.
MA's are a powerful tool in the arsenal of a trader/investor. For those who don't know: A moving average is nothing more than a smoothed version of the price compromised of the average price from X candles on any given time frame, X being the input.
For example;
MA 20 // 1W // Each point contains the average from the previous 20 weeks of price action
MA 150 // 1D // Each point contains the average from the previous 150 days of price action
MA 200 // 1H // Each point contains the average from the previous 100 hours of price action
MA 500 // 5M // Each point contains the average from the previous 2500 minutes of price action (500 x 5)
And so on and so forth.
X, Y & Z Climax points + Next bubble potential targets as a result
These are the points at which the price breaks above the mean and goes near vertical, not much else needs to be said about that. People are often disinterested if you don't talk price so here is an observation (I am not implying this will be the case).
Coincidentally, the projected trajectory of next mania intersects the mean at about $50'000. This is a very important price level psychologically speaking because it means a cap of $1'000'000'000'000 ($1 Trillion). Humans like round numbers, 50k is very round. To get to 100k from 50k, as implied by the breach of the green dotted line (the mean) we need another $1 Trillion in market cap to be added... is this likely? Honestly who knows, it's Crypto.
--------------------------------------------------------------------------------------------------------------------------------------------------------------
And now for the BEARISH scenario - The part no one wants to hear
From a TA and FA standpoint there is no real reason to be overly bearish in the long run. But for arguments sake I will bring some things to mind that could bring the bearish scenario into play.
Black Swan Events // Self explanatory why these are bearish.
Regulation // If Governments or banks decide they don't like Bitcoin or any non-state run crypto, they can simply make it illegal to use. They cannot stop you from using it but they can prosecute you for doing so.
Recession // This will be Bitcoins first real test as we are heading into the next global recession at the time this publication. Bitcoin was forged in the fires of the last recession, will it be able to stand tall in this one? Time will tell.
I do see some people saying that the pieces are being put in place for the big boys to pump Bitcoin to the moon during this next recession. There is a chance of course but it is in my opinion quite delusional for two reasons.
1) It makes zero sense to hedge in the most risky asset class in existence during times of high risk in the traditional markets.
2) Bitcoin whales are sooo far ahead of the curve in terms of accumulation that if Institutes were to pump Bitcoin to hedge their wealth during the recession that whales could obliterate their wealth by dumping. Remember, the higher Bitcoin goes the more powerful they are in this regard.
Outdated // Some new technology could be so much better than Bitcoin by several orders of magnitude that people decide to ditch Bitcoin in favour of the new coin. Unlikely, but unwise to rule out. This is why diversification into projects aiming to solve on chain scaling is not a bad idea in my opinion.
Difficulty // Bitcoin difficulty adjustment happens every 2016 blocks. That means at the average price of blocks (10 minutes) it takes 2 weeks for the adjustment to take place. If there is a sufficient drop off in the network hash rate (we saw a significant % drop during the BCH war but not enough to cause long term damage) the difficulty could be so great relative to hash power that the Bitcoin protocol effectively freezes. In theory the network could hardfork to an adjusted difficulty rate but what is to say the same thing couldn't happen again?
--------------------------------------------------------------------------------------------------------------------------------------------------------------
Conclusion
We live in exciting times. We are perhaps on the cusp of a new type of decentralized society and I am cautiously optimistic going forwards. Regardless of the price or getting rich, if this experiment succeeds humanity has a brighter future ahead, potentially with a bottom up structure. That being said, I still think we are 18-24 months out from the beginning of the next bull market. Be patient, see the bigger picture and accumulate accordingly.
Thank you for taking your time to read my ramblings (if you made it this far :P). I really do appreciate it!
P.S - Please leave feedback in the comments and perhaps even coin suggestions that I can do future posts on similar to this.
Peace.
Note
Correction regarding Moving Average segment. "500, 600 & 1000 week moving averages" - This is incorrect. At present we only are up to a 500 week moving average, it would be another 10 years before we see a 1000 week moving average. My apologies.
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