Long Term Update: 2018 Outlook with entropic methods

Every beginning of a new year i post an outlook using entropic methods explained in the technical section of this blog. Here you can find the 2015, 2016 and 2017 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 of 4 exchanges when possible).

 BTC/USD
Growth Factor G 1.0028 (1.0007)
Shannon Probability P 0.5384 (0.519)
Root mean square RMS (see this as volatility) 0.059 (0.045 )

Bitcoin’s entropic values versus the Usd strongly improved in 2017 but volatility increased a bit, despite this the Growth Factor (G) increased up to 1.0028% (remember that volatility is detrimental to the Growth Factor) compounded daily or 280% yearly up from 30% of 1y ago. Also the optimal fraction of your capital to invest in bitcoin improved in 2017 with a 7.7% instead of 6.4% of 1y ago.

 2018 Price forecast  Full volatility  Half volatility
Forecast using only G* ~38700$ ~38700$
Upper bound adding volatility ~121000$ ~68000$
Lower bound subtracting volatility ~12300$ ~21800$

*38700 is obtained with today price (around 13800$) times (1.0028^365)=~2.77
13800*2.77=38740, just change 365 with the number of days you prefer for a different forecast.

It’s interesting to notice that with reduced volatility the support level is above the actual quote of XBTUSD (13800$ at the moment i’m writing) because the growth factor (G) is very high and is skewing everything to the upside. If volatility stays low the uptrend should push bitcoin above 22k USD during the year without too much effort, it’s a scenario i prefer instead of wild price swings.

What went wrong in 2017?

A year ago, I forecasted a top of $2900, reached in July 2017 with an intermediate Top well ahead of the end of the year. I tried to double the volatility factor (rms) to see the next level after a reader asked me about the possibility that bitcoin was in a bubble above 2900$. The next level was around 6000$, again this new level has been broken at the end of October.
The last 2 months have been crazy and the explanation is a huge change in shift in this market happened in March 2017 (with altcoins literally exploding) that basically erased the reliability of the January 2017 forecast. I think that this year forecast should be more accurate compared to last year.

Conclusions

For this year i think that i’ll consider the support/resistance levels obtained with a full volatility value with the result to have for the whole 2018 a good probability to stay inside the 12300$-121000$ price zone.
At the same time i think that at the end of a strong buying climax period, if any, it will be wise to reduce your bitcoin investment if the price goes above 60k-70k USD.

I’m at your disposal for any questions; see you at the next update and Happy New Year!

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11 thoughts on “Long Term Update: 2018 Outlook with entropic methods

  1. djidji

    Hey, i’ve seen youi recommend to wait to get again to the 7000/9000 USD per bitcoin before reinvesting again, do you still think that ?

  2. daskleinepi

    hey enky, just wanted to say thanks for all your analysis and material you put on here. there are not so many people that give such solid analysis (at least it appears to me). i know it is a lot of work, keep it running, it serves the entire crypto industry i would say. do you have some references (literature, publications), you are getting your methods from?

    1. Thanks, yes, here some:
      QUANTITATIVE TECHNIQUES FOR FINANCIAL ANALYSIS

      Jerome Valentine and Edmund Mennis, The Financial Analysts Research Foundation,1980.

      THE PROFIT MAGIC OF STOCK TRANSACTION TIMING

      J. M. Hurst, Prentice Hall, 1970.
      Reprinted by Trader’s Press, 2000. The first mention of trading bands/envelopes and an important book on cycles.

      STATISTICAL ANALYSIS: AN INTERDISCIPLINARY APPROACH TO UNIVARIATE AND MULTIVARIATE ANALYSIS

      Sam Kash Kachigan, Radius press, 1986.
      A great book for traders/analysts who want to understand their work in a rigorous manner.

      Trading Systems and Methods, Perry J. Kaufman, third edition, Wiley, 1998
      A good starting point for studying trading systems.

      The Art of Contrary Thinking, Humphrey B. Neill, The Caxton Printers, fifth edition, 1992
      The original book on how and when to part with the crowd.

  3. Christian

    Hi Enky,

    Do you think that it likely for XRP to reach the 4$ range in the first half of this year or at latest at the end of this year?

    Thanks Christian.!

    1. It’s very hard to answer your question because ripple is mainly dominated by volatility and there is not a clear multy year up trend. Considering actual volatility i can tell you that there is a 50% probability to see Ripple inside the 0.66$-6$ price range this year. Above 6$ the next level is 20$ but it would imply a market cap of 1.4 Trillions $:) a bit unrealistic.

  4. Brian

    Hi Enky,

    Like many others I jumped on the bandwagon when BTC recently peaked and I just want to know if it is realistic to assume that I can recover my capital if I hold to my BTC for 3 years?

    I do not think that I will be able to recover 50% loss with day trading and I have a full time job, so it is not really an option for me.

    Thanks,
    Brian

    1. If i look the weekly chart of the last 2 years u don’t need 3 years to recover, just few months. Let see if bitcoin can stay above the key support area 7500-9500 $$.

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