Quick Update and general considerations

In the last update in May 2022, I hypothesized that Bitcoin would not remain above the annual forecast support, set at 29,800 dollars. At the time, I also hypothesized a possible test down to the first support of my monthly Kama average, at around 22,000 dollars, a test that then materialized.

The problem is that bitcoin did not hold that support and the next support, in May, was around 14300 dollars. The monthly kama average that I use, unfortunately, is no longer as flat as it was in May but is starting to take a negative slope. For those who have been following me for a while, you should know that I measure the intensity of the trend by looking at the ratio between volatility and the intensity of the signal that the kama average measures.
This value has not yet exceeded the threshold value of 0.30 that decrees the existence of an ongoing trend, but we are very close. So at the moment a downward trend is not yet confirmed on the monthly chart of Bitcoin but it is close. A similar situation occurred in the distant July-August 2015, at the time then Bitcoin made a bottom in the following months before starting to rise again towards the 2017 bubble.

Some things have changed since 2015, Bitcoin is no longer so small in terms of market capitalization, it has attracted institutional investors who follow different logic from the investors who owned Bitcoin in 2015.
Today, those who invest in Bitcoin, in my opinion, are still influenced by traditional markets with their logic and especially by the monetary policies of central banks that are no longer as accommodating as they have been during most of Bitcoin’s existence.
A liquidity crisis, triggered by central banks in recent months, can only harm Bitcoin or at least slow it down and that is exactly what we are seeing in these months. I believe that the current scenario will continue at least until the first part of 2023 and this will probably lead Bitcoin to test the 14300 $ support of the May 2022 support, a support that today unfortunately has fallen to 12300 $ becasue of a slight downwards drifting phenomenon of the supports of my monthly average.

A New Approach to Price Bitcoin

In the comments section of my previous post “Will it work?”, I responded to some followers by introducing a model that I am developing in an attempt to correctly price Bitcoin. I believe this model is an improvement over the well-known stock to flow model by Mr. PlanB, a well-known person on Twitter.

Instead of considering only the money supply, which as the sole input of a bitcoin pricing model has already been shown to be insufficient, I consider the Bitcoin difficulty derived from the network’s hashing speed. I have therefore tried to combine two important characteristics of Bitcoin in a single model: the money supply and its difficulty or network effect/hashing speed.

I have also considered a 20% error band that contains what I believe is the correct price of bitcoin, so -20% on the fair price and +20% on the calculated fair price. As of today, this fair price value is around $15,000, with a minimum of $12,000 and a maximum of $18,000. As you can see, at the moment bitcoin is within this price range, so it can be considered properly priced without significant excesses.

You will have noticed similarities between the two approaches, the one of the monthly averages plus deviation bands known to you and this experimental model that I recently made, both aim at $12000 as the last support, below which one could talk about a real bear market for bitcoin. If you want to make a deal, bitcoin should be bought when it is below its fair price, so try to buy as close as possible to the price range of $12 to $15 thousand that could be reached in the first half of next year.

I wanted to share with you these things that I am working on. As always, feel free to comment with your thoughts on the matter.

BTCUSD, Daily Chart, Bitcoin FairPrice Model version 1.0

This is an experimental model, it shouldn’t be used alone for proper investment decision.


3 thoughts on “Quick Update and general considerations

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