Short Term Update


In the above attached daily chart you can find the usual moving average that i use, the VWAP calculated with the last 2 months of data and its price deviation lines, also you can see the white line that is the ALMA moving average, in the lower pane there is the well know RSI oscillator.
The ALMA average has just moved back into bearish position and I think prices should go down to retest the first VWAP negative deviation line at $212, if the volatility stays low instead I think that $225 should work as support.
For those who follow me in my IRC channel they know that i’m short from $237 with a target variable from 225 to 190 dollars, I decided to open a short position (short term trade) after the market has made a lower top ($268 below the previous one at $310). I’ll remain short as long the market will stay below $250-$270.

In the last 30-40 days i’ve done 2 more short term trades, from $200 to $227 and from $237 to $255, i would like to conclude this update by telling you two words about the long term picture: it’s very simple the long term moving average remains bearish so not yet time to average down my long term position.

Long Term Update

I waited a while before publishing a new update after the crash to $165 to see if market would have stabilized over $ 200. Now XBT/USD do seem to have a bullish bias and it has traded up from oversold levels but there is too much risk to go against the short term bearish trend. Despite this risk i decided to open a short-term trade (2 long positions opened at $230 and $170) that i’ll probably close at $270 where i’ve the first decent resistance level.
Before thinking about any bullish longterm safe bets i need to see my long term moving average turning bullish again, at the moment it is at around $300 and firmly bearish.

In the below attached chart I have highlighted the important levels for this year that i’ve spoken about in the previous update,these levels are still valid and i think that any visit below $220 and above $130 represent a long term buying opportunity. It would be a perfect longterm buying signal to see this year my long term moving average turning up with the price still below $220.


Long Term Update: 2015 Outlook with entropic methods

With the smell of fireworks still lingering in the air i computed the 2015 outlook with entropic methods used in modern finance. The concept of entropic analysis of equity prices is old and it was first proposed by Louis Bachelier in his “theory of speculation”, this thesis anticipated many of the mathematical discoveries made later by Wiener and Markov underlying the importance of these ideas in today’s financial markets. Then in the mid 1940’s we have had the information theory developed by Claude Shannon , theory that is applicable to the analysis and optimization of speculative endeavors and it is exactly what i’ve done just applied to bitcoin/usd ratio, especially using the Shannon Probability or entropy that in terms of information theory, entropy is considered to be a measure of the uncertainty in a message.
To put it intuitively, suppose p=0, at this probability, the event is certain never to occur, and so there is no uncertainty at all, leading to an entropy of 0; at the same time if p=1 the result is again certain, so the entropy is 0 here as well. When p=1/2 or 0.50 the uncertainty is at a maximum or basically there is no information and only noise.

Applying this entropy concept to an equity like a stock or a commodity or even bitcoin itself common values for P are 0.52 that can be interpreted as a slightly persistence or tendency to go up, this means that for example stock markets aren’t totally random and up to some extend they are exploitable, same for btc.
Knowing the entropy level of bitcoin/usd is crucial if we want to compute its main quantitative characteristics, as i explained in the technical background of my blog this process is quickly doable once you have all the formulas.

 BTC/USD  US Stock Market  Gold
Growth Factor G 1.000553 1.000198 1.000120
Shannon Probability P 0.518 0.510 0.508
Root mean square RMS (or volatility factor) 0.056 0.022 0.009

As comparison i included in the above table a commodity and the american stock market, you can quickly see that bitcoin is much better then them in terms of growth, also the entropy is lower (because P is higher) the only negative aspect is the volatility that is much higher nevertheless the growth factor of btc/usd remains pretty high and once volatility decreases it will improve even more.
At this point with those quantitative parameters we can quickly compute a price forecast for 2015 just taking the growth factor G to the power of 365 (365 samples for 1y) and multiplying it for the initial price, at the moment is 315$, so we have:

Target price for 2015 = price * G^365 = 315*1.000553^365=383$ or 26% expected growth, but because of a rampant volatility there will be for sure strong price  fluctuations above and/or below 383$.

 2015 Price forecast  Full volatility  Half volatility
Forecast using only G 383$ 383$
Upper bound adding volatility 1136$ 660$
Lower bound subtracting volatility 130$ 220$

I included in the table also a forecast using an halved value for volatility, it is interesting to see that with reduced volatility i don’t expect to see prices below 220$, a well know support value for who follow regularly my blog and chat, I expect from buyers a strong buying activity in the low 200$ for all 2015 if the opportunity arise.

The price target in case of a new bubble is unchanged and it is the same i was forecasting last year, roughly 3300$ but don’t get excited too quickly:) there is only a chance of 5% to go there in 2015.

As usual i’m available to questions if more explanations are needed or if you want to obtain more details of these computations (formulas used etc..).

Long Term Update: again bearish

In my last tweet i’ve said that support is at ~$315 let see in detail why.


I indicated in the above chart a strong support area for the next 1-2 weeks, XBT/USD is now again bearish because XBT/USD took a peek below the 2 months VWAP support zone at ~350$. I think the market will spend most of its time today and the next days above or at $315 and if it does then the 316$ November low probably ended the drop from 463$ on November 13. Despite the prolonged correction seen in 2014 I see no sign that the very long term bull market has ended (bitcoin is well above the 2013 average price) and in any case I expect the XBT/USD to hold above its previous 2013 top at 266$.

In case of a move below $315 a problematic scenario could develop with the possibility of my old bearish scenario to materialize (a quick visit to 230$ or so). I Expect buyers to show up below 300$ but in this market the volatility is unstable and can increase very rapidly making it difficult to make predictions on where the bottom will be.

Long Term Update


I don’t have much to say since my last update, this market remains confined in a price zone defined by my VWAP (computed using 2 months) and its first deviation line, why? probably because of the bearish indication from the daily ALMA moving average that i pointed out in the previous update (since then XBT/USD failed to make new highs above $400); average that is now slightly bullish after a VWAP test last 21 November at $350.
In the last month we have seen a sequence of three higher lows suggesting an underlying effort to go up with a possible target for December of $420, while support is always around my short term VWAP ($350).

The weekly ALMA moving average is now flat after more then 5 bearish months, it’s an improvement but not enough to confirm a long term reversal, we need patience but at least XBT/USD is trying to build a base for a bullish 2015.

Long Term Update: Losing steam?

This is a daily chart of 4 main exchanges (bitfinex, bitstamp, btce and btc china data averaged down), the blue tick line is the ALMA moving average. As you can see in the last 2 days the average turned bearish again, this doesn’t mean that XBT/USD will fall for sure, it might be a false signal but considering that also the weekly ALMA turned again bearish failing to confirm the bullish reversal of last week the obvious conclusion is that this market is losing a bit of strength and the risk of a downswing is around the corner. I think that as long as it stays above 360$-365$ is fine despite a negative outlook by those averages but a break to 350$ or lower would confirm the bearishness in the currency pair.


Long Term Update: True Break Out?

After trading in a range that lasted for almost five weeks (300$-380$ price zone), bitcoin prices have made a run for it. The breakout above the ALMA weekly moving average (now at 380$) happened very quickly with high volume. Given the volume action of the last few days, another breakout above the $500 level at a first glance seems likely in the near future. The first decent resistance is the one year VWAP now at around $550 and it’ll be a true test to see if XBT/USD is still in a correction inside a long term bull market.

As i’ve said the weekly moving average i use is turning positive but i need to wait this and the next week to see if the reversal is genuine or not, the risk that we are just seeing a giant bull trap is not excluded; it might happen a repetition of may-june pattern where after an upmove of 250$ the market stalled and resumed the downtrend in July.

For the time being the possibility to reach a long term bottom at $220 by year-end is fading away, at this point i’ve to consider the recent bottom at $275 as an important one and again above the top of the previous cycle did at 266$.


Short Term Update: Trade idea for next 24-48 hrs

Since the early June 2014 high at ~$685, the XBT/USD daily chart has been in a downtrend. By early October, it reached $275 and a move lower towards $220 is not excluded as i said on my previous update. For now a good trade idea could be to buy on the dip around $307 with a take profit at $320; or alternatively go short now with $307 as a target and a stop loss placed just above $335.  Recently I dusted off an old program that uses Elliott Waves Concepts and with a short term analysis i’ve a similar target, $310 and $300. The analysis has been made using minute and minuette as order of degrees; it’s common knowledge that minute or minuette wave degree is intended for few days and hours as investment horizon.

Long Term Update: Weekly Chart

It’s has been a while that i don’t post a long term weekly chart and i think it can help us to better understand where XBT/USD is headed. Price is not going to take off any time soon (it recently moved below the $360 support price i was monitoring in the last days), but more likely to continue its fall towards a new bottom below the 266$ April 2013 top, i expect the bottom to be somewhere near $220 for different reasons.
First, i’ve there at $220 an important deviation line of the 1 year VWAP , second considering actual bitcoin volatility it is very unlikely to move below $200 in the next two months (end of the year), and for “unlikely” i mean a 5% possibility (2 sigma event).
And third, and it is the most interesting, miners production cost for 1 btc ranges from $100 to $200 depending from their hardware amortization expense and running costs, mainly electricity. As bitcoin approaches their production cost value as more miners will feel the pressure and it’s difficult to imagine their reactions but i’m confident that they will avoid to panic sell because they must protect their business at the cost of some temporary losses or missed profits.
If they instead decide to stop the mining farms and to liquidate most of their accumulated bitcoins then it might repeat what we’ve seen in 2011, a severe bear market with dropping network difficulty. Bottom? probably around 80$-100$, a nice 3 sigma event or 1% chance to happen but it is very, very unlikely to happen.

OFFTOPIC: Donations

First of all I’d like thank everyone for contributing to this blog with donations since 2011; said this I kindly ask you to don’t send donations less than 0.01 bitcoins because there are problems with coinbase to process transactions below 0.01 btcs. I already reported this issue to coinbase technical stuff, i’m waiting an answer.

Thank You