Long Term Update: 2021 Outlook with entropic methods

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,  20182019 and 2020, 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 important exchanges when possible).

   BTC/USD
Growth Factor G 1.00104 (1.00087)
Shannon Probability P 0.5232 (0.5219)
Root mean square RMS (see this as volatility) 0.055 (0.056 )

Bitcoin’s entropic values versus the Usd improved during 2020,  the Growth Factor (G) grow to 1.00104% compounded daily or 146% yearly, higher then 1y ago. The optimal fraction of your total wealth to invest in bitcoin rised to 4.6%  (~0.5232*2=1.046 – 1 = 0.046 or 4.6% 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.
These values are still 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.

 2021 Price forecast  Full Historical Volatility  Half Historical Volatility
Forecast using only G* ~42,400$ ~42,400$
Upper bound adding volatility ~121,000$ ~71,850$
Lower bound subtracting volatility ~14,750$ ~25,000$

*42400 is obtained with 1st January as a starting price (around 28985$) times (1.00104^365)=~1.463   |  28985*1.463=~42400, just change 365 with the number of days you prefer for a different forecast.

What happened in 2020? 

A year ago, I forecasted a maximum top of $29380 almost reached the last day of the year.
This market has made a low in March that I like to call a “selling climax bottom” when the bearish momentum is exhausted during a major event, this low (3850$) was a bit above the 3370$ support level forecasted 1 year ago using full historical volatility.
During 2021 I recommend to hold your position till the upper boundary of the next cycle and, personally, i’ll continue to hold  my position opened at ~9100$ and I will not buy more bitcoins during 2021.

Conclusions

For this year i think that there is a good probability to reach an incredible new all time high above 100,000$!
Like one year ago,  i think that it will be wise to reduce your bitcoin investment if the price goes above ~200k USD (price calculated using the equivalent of 1.5 times the historical volatility of bitcoin).

For your curiosity, if there will be an explosion of volatility for whatever reason (massive migration of institutional investors from gold to bitcoin), using twice the value of historical volatility our target is ~350,000$ instead of 121,000$

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

Charts

 

Bitcoin’s cumulative volatility as expected is dropping every year and is stabilizing towards a value that is still a bit high compared to other traditional assets (stocks, gold, bonds range from 0.01 to 0.03) but the very high average returns of btc compensate the high volatility. The values represent the root mean square of logarithmic returns of bitcoin daily data.
Last 3 years of annual forecasts

14 thoughts on “Long Term Update: 2021 Outlook with entropic methods

  1. TinyCryptoInvestor

    Happy new year. As a very small investor, how do I make the most of this market with futures without a real risk of being liquidated?

    Also, are the 30% dips similar to the 2017 markets still likely? Or will the reduction in volatility mean we’d only see 20% dips?
    Thank you for the articles shared.

  2. Frank

    Thanks for this update Enky.

    Nice to see this update here 😉

    Never sold since 2013. I wish all hodlers a comfortable financial future.

    Regards Frank

  3. Alberto M:

    Thank you Enky for this update! If I wanted to increase my BTC to hold, is it realistic in your opinion to buy this year in the range between 14.7K$ – 25k$?

    Regards, Alberto

  4. Ivelin

    Happy new year! Thank you for the great analysis! Once again, you’ve proved yourself (at least to me) as one of the best traders in the crypto world.
    Now that the “Upper bound adding volatility” with “Full Historical Volatility” is ~$121000, does this mean that your “Bitcoin Price Model v1.3” is now invalidated and we should switch back to v1.1?
    Once again, thank you for the mathematically-justified analyses.

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