Every year i post an outlook using entropic methods explained in the technical section of this blog. Here you can find the 2015, 2016, 2017, 2018, 2019, 2020 and 2021 forecast update, where you can find more information about this approach.
Updated values for bitcoin (in brackets values of last year) using daily data since August 2010 (average data of 4 main exchanges when possible).
BTC/USD | |
Growth Factor G | 1.00130 (1.00104) |
Shannon Probability P (see this as entropy) | 0.5254 (0.5232) |
Root mean square RMS (see this as volatility) | 0.049 (0.055) |
Bitcoin’s entropic values versus the Usd improved during 2021, the Growth Factor (G) grow to 1.00130% compounded daily or 160% yearly, higher then 1y ago. The optimal fraction of your total wealth to invest in bitcoin rised to 5.1% (~0.5254*2=1.051 – 1 = 0.051 or 5.1% roundable to 5%).
Volatility continues to drop year after year and that’s normal as bitcoin gets bigger and bigger so less prone to volatility.
The BTCUSD growth factor is much better then conventional markets except the Shannon Probability that still match the US Stock Markets (around 0.522); it means that out of 100 days an asset goes up 52 days and down for 48 days, on average. I am not surprised of this because the same agents trading in conventional markets are more or less the same as those trading in the crypto market, so they have the same entropy or mental disorder.
2022 Price forecast | Full Historical Volatility | Half Historical Volatility |
Forecast using only G* | ~77,000$ | ~77,000$ |
Upper bound adding volatility | ~199,000$ | ~123,000$ |
Lower bound subtracting volatility | ~29,800$ | ~48,000$ |
*77000 is obtained with 1st January as a starting price (around 48000$) times (1.00130^365)=~1.6 | 48000*1.6=~77000, just change 365 with the number of days you prefer for a different forecast.
What happened in 2021?
A year ago, I predicted a top of $121,000 using full volatility and about $72,000 using half of historical volatility, the latter being more likely to be hit and this is exactly what happened considering some room of error.
This market has made a low in June at $28,750, 10% above the $25,000 forecasted support level, again using half historical volatility.
During 2022 I recommend to hold your position till the upper boundary of the next cycle defined by monthly kama upper resistance bands ($80,000-$130,000) in accordance with the forecasted value of $123,000 using entropy methods and half historial volatility.
Conclusions
As I said in the previous October update, I continue to believe that conditions in this market have changed since the other halving cycles which usually saw a Top around 19 months after the halving date. I expect a consolidation in 2022 with a slightly bullish sideways phase.
A very strong support zone remains the $30k to $48k price range that might be fine tuned during the year using Kama monthly price bands.
Should there be an excess of volatility I would advise you to take advantage of the event with some profit-taking between 120 and 200 thousand dollars; if volatility push the price down to the support area of $30,000-$48,000 do the opposite, buy:)
I’m at your disposal for any questions; see you at the next update and Happy New Year!