Long Term Update: Will it work?

Since I published the annual forecast last January ’22, BTCUSD has already tested the lower limit of the forecast twice, at around $30,000.
I don’t know whether to interpret this behaviour as a sign of weakness or not. What is certain is that if the TOP of this halving cycle has been made it is very likely to test at least the 1st lower band of my monthly Kama average (22,700$).
Let’s see in detail the levels that I consider interesting to observe.

BTCUSD Monthly chart since 2017 Top

I would interpret as a signal of possible weakness a breach of the $29,800 level, certainly we need to consider how long bitcoin will remain below that level.
In times of temporary high volatility it would not be so serious a short permanence there; however a prolonged stay below this level would have long term bearish implications. What does this mean? It means that the games are over for this cycle and we will have to wait for the next halving of 2024, so I would say 2025, to see a new all-time high. This conclusion I guess doesn’t surprise you, by now the 4-year halving cycle of bitcoin is well known to the public.

The question is whether the price will stop at the first level of the Kama band or not. I think so, around $22,000 the support will be very strong and there will be buyers.
I exclude a severe test at the next support, around $14,000, also because bitcoin has never moved below the high of the previous halving cycle, in this case the last one was at around $19,800 in Dec. 2017; furthermore even during the corona crash the price stopped on the first lower band (at that time $3,800)
I wonder what needs to happen to see bitcoin test the second price band at $14k, if any of you have ideas please come forward ūüôā

Personally, I will be a buyer again around the first support of the Kama average, around $22,000. Should an extreme level of volatility occur, I will increase the position at $14,000 with a doubled position size (1 unit at 22k$ and 2 units at 14k$) because i’ve to capitalize when volatility is at extreme levels without any fear.
See you at the next update.

Long Term Update: 2022 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,  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!

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.
Monthly Chart BTCUSD with 2022 Price Forecast using entropic method.
The first lower monthly kama average will probably slowly reach the $30,000 level during the 2022.
I expect to find similarities between the levels calculated in the Kama indicator i use and those used with this approach, the formulas for calculating the bands in my indicator are the same as those used in this update.

Long Term Update: Will it work?

In the last update I had pointed out that it was crucial to exceed the monthly kama average (at that time around 40k usd), so bitcoin did and after a very strong bottom in July it resumed the uptrend on the monthly chart. Why a strong bottom? Because it was far above the support price zone defined by the lower bands.

At this point it is obvious that it will do a new top under the push of the ten-year old uptrend, after all bitcoin never entered a prolonged bear market since its inception.
For quite some time now, thanks to the price bands, I have identified the price zone where the next top will happen, that is between 80 and 130 thousand dollars. This is the minimum target IF, and I emphasise IF, the monthly average kama will remain flat.
If you look at the attached chart you will notice that the monthly kama average is no longer flat but is going upwards, albeit slightly.

BTCUSD Monthly Chart

This fact should be kept in mind because the greater the upward slope of the average the lower the possibility that the bitcoin will stop in the resistance zone, if an asset is trending strongly you should forget the price bands.
You may have noticed in the chart this aspect of the 19 months between the halving of the block and the market high, there are already two times that this market did a top within 19 months from the halving and in this cycle the expiry date is next December, the question then arises, will it work?

I think not, the market is never so symmetrical, we are talking about non-linear dynamics here that almost never lead to a strong symmetry or repetitiveness of price patterns, so I expect it to do something different this time and there are two possibilities, or that the maximum has already been done or that bitcoin will make another even beyond 19 months from halving, I am inclined to the latter possibility with the important implication that it might go above the price resistance zone.

How to translate this into your trading operativity? For the more risk averse you could evaluate a scaling down of the position at a point of your choice in the range 80k-130k usd. For all others you could use a dynamic stop loss like “chandelier exit” to try to exploit as much as possible the current uptrend. Search for “chandelier exit” or “chandelier stop” on tradingview, you will find many versions of this indicator.

Long Term Update: Critical Point

It is always better to look, as I always say, at larger time frames to understand how to build a winning operating strategy. I invite you first to look at this monthly chart of the BTCUSD, before commenting it.

BTCUSD Monthly Chart with Kama Roof/Floor price zones

We are clearly compressed in a price range well defined by the monthly average that defines the equilibrium point of this halving cycle (2020-2024) and an intermediate level with reduced volatility (around $28,000).

A Failure to move and to stay above the monthly Kama average would be bearish in my opinion and it would clearly be followed by a decline to the support zone of this halving cycle, between $11 and $18K.

With a confirmed break of the monthly average above $40,000 then the view would change and bitcoin would return to a position of strength that should bring it towards the resistance zone located between $80 and $130,000, in accordance with what I wrote in January in my “2021 outlook with entropic methods” where upper bound level was 121,000$

Bitcoin and the top of the previous cycle rule

Because of this rule i’m very skeptic to see bitcoin at 18,000$ or even lower inside the support price zone. Bitcoin in its history never tested the price level of the top of the previous halving cycle and if 29,000$ bottom is confirmed this rule will not be broken (29,000$ is above 2017 Top at around 20,000$).

What would a bottom in this cycle below 20,000$ imply? Well, it would mean that bitcoin’s long-term trend is slowing down and we would probably have to wait for the next halving cycle, after 2024, to see a Top above the current one at $64,000. Thus, as i wrote in this post title, we are at a critical point in time to understand what scenario bitcoin will go into.

The Big Picture

BTCUSD Monthly Chart since first halving

Here you can see what I said before, the Top of a halving cycle is always lower than the bottom of the next cycle, I interpret this as a strong bullish signal of the fundamental trend of bitcoin.

To conclude many of you are probably asking why the hell i sold below 29,000$ if there was an intermediate support slightly lower, well once i define a strategy with a trailing profit order i prefer to avoid to continously change it to accomodate what the market does, i had already moved the trailing profit order from 35,000$ down to 29,000$ to contain the volatility of bitcoin and it worked for several weeks then some bad luck damaged me, however this is all part of trading and i’m not upset at all.

Short Term Update: Still bearish

We are flat, usually it happens so the market finds a strong point (where the indicator of efficiency of kama average reaches values around 0.80-0.85) and stops, at that point it can go in lateral or bounce noticeably.
In most cases we enter in a lateral phase which is now defined by the usual bands that I use (see chart below).

BTCUSD – Daily Chart

What i’d like to see is:

  • Some consolidation above daily kama average, >38,000$
  • A first breakout of the first resistance band at 41,000$
  • A test of the 2nd band at 44,000$
  • Some healthy retracement back to 41,000$ or so
  • Final break-out above 44,000$

This could be a good recipe for a trend reversal on the daily chart.

38,500$ is not only the daily kama average but also the 2nd support band on the hourly chart, i’d like to see bitcoin above it these days during a possible accumulation before to break above 41,000$.

Fix in your head that as long as we stay below $44,000 (by the way it is also the monthly Kama average) my view remains bearish.

Long Term Update: Top is probably in for this cycle.

I think at this point it is very likely that the TOP of this cycle has been done and to see a next top we will have to wait the next cycle of 2024-2028 with a possible top expected in 2025.
One could say that Bitcoin could repeat what we saw in 2013 with two successive highs, one in March and the other in December but I think it is unlikely that history will always repeat itself with the same patterns.
I don’t think it is negative for bitcoin another 4 years of consolidation spent between the floor price and kama average as we have seen in previous cycles.

As you can see in the below monthly chart the new floor price zone is around 12k-20k usd, will bitcoin go there? I don’t know, honestly I think we can expect something different this time as the intermediate level of low volatility highlighted in the chart may work holding bitcoin above 28k usd.

BTCUSD – Monthly chart

First test is to see if this intermediate level will work or not, if not then a capitulation might occur around 20k usd that it was also the top (static support now) of the previous cycle (December 2017).

My doubts also include the fact that I was expecting a much stronger top than this one done at around 64000 dollars, if confirmed it would be a weak top for this cycle and I would interpret this as a slowdown of the long term trend; this is also understandable, as an asset grows in size it also becomes slower and more stable with lower and lower volatility and less and less intense bubbles.

For the current trade the trailing profit at $29k remains unchanged, if caught I think I will buy back again if support at 28k will holds in the coming weeks and/or months and eventually i’ll buy again inside the floor price of this cycle.

Crash Update: How many Periods to use?

I’m writing this update to do a clarification to the analysis posted the other day, as I had said the support range of the price bands that I use had contracted a bit giving me an area of support of 36-42 thousand dollars, why this? Because I use 60 periods to calculate volatility and more than 60 periods or weeks have passed since the minimum of March 2020 where there was a correction similar to this one, therefore the volatility peak recorded in that bottom of last year is no longer included in the calculation.

Hence the question “How many period to use?” is legitimate, in some cases is smart to fine tune the indicator parameters to better accommodate what is happening (an increase of volatility).

For those who use my indicator with tradingview can verify what i’m saying by themselves by increasing the setting “rms periods” from 60 to 70 for example.

Having said that, the support zone is thus corrected to around 31-40 thousand dollars and I would say that for now it has worked quite well, this means that we are still in the limits and that a trend reversal on the weekly chart is not yet confirmed, so far we are just seeing volatility at work.

We will have to wait until the end of this week and next week to better evaluate the ongoing correction to check if bitcoin price will remain above 31000$ or not.

BTCUSD Weekly Chart

Long Term Update: No more Tesla.

“…..on the daily chart where there is strong support but again it is a question of which timeframe will prevail and at the moment I would bet on the weekly chart, nonetheless¬†there might be a minor rebounce from here….”

Last Update April 23, ’21

The minor rebound happened, market remained sideways around the daily average and came back down because of an accident (a tesla went off the road)
Let’s broaden the view with a weekly chart.

BTCUSD Weekly Chart – Below Kama Efficiency Ratio

Everything that has been happening since February 2021 which is the the slowdown of the trend on the weekly chart was expected and is the result of a careful observation of the volatility / trend ratio, two elements that characterize the average that I use (Kama)
I expect a further slowdown of the trend until mid-June when Bitcoin will be completely flat, from there on a new trend will emerge on the weekly chart; the future of bitcoin will be decided there should this new incoming trend be positive or negative (i guess positive).
A good idea could be to buy in the next week if bitcoin will test the weekly support zone in the 36,000-42,000 $ price zone, this market is lateral therefore I expect that it will not fall under 36000 dollars.

I think in July, I hypothesize, some liquidity may return to bitcoin from altcoins, also because the bitcoin market share chart (BTC.D on tradingview) has a nice spike in the kama efficiency ratio on the weekly chart (bottom might be near).
If a new trend is expected on the weekly chart for July let’s say, who could fuel this new trend? A return of liquidity from altcoins to bitcoin itself.

As usual if you have any doubts leave a comment, it is well appreciated.

Long Term Update: Weekly average broken down!

I left you on March 31 saying that bitcoin would probably go up with less intensity, that’s what it did by making a new top around Coinbase’s Nasdaq listing event.
It can happen that such events that catalyze the attention of the entire community can mark what I call “buying climax” remember that the main feature of such an event is when you run out of demand around a highly anticipated news or event like the Coinbase listing.
The situation on the weekly chart has remained unchanged, I’ve been telling you for two months that the Kama efficiency ratio is high and needs to go down and that’s what it keeps doing, today we got to about 0.59 and I think it will continue to go down until the next sideways phase.
This sideways phase should take place between 30K and 40K usd as shown in the chart below but my bet is that 40k usd support will work.

BTCUSD – Weekly Chart

As I told you, the kama efficiency ratio is going down but it’s going to take weeks to get below the 0.30 threshold,so it will presumably take a while before bitcoin will resume the uptrend.
I conclude by commenting on the daily chart where there is strong support but again it is a question of which timeframe will prevail and at the moment I would bet on the weekly chart, nonetheless there might be a minor rebounce from here.

BTCUSD daily chart

Short Term Update: again at critical key point

I concluded the previous update saying that it would be critical to see whether or not bitcoin would break through the monthly Kama moving average (51.000$ at that time).
I waited a bit to see the extent of the positive reaction from the value this weekly average had that day, again 51k usd. Exactly like in the previous update bitcoin is again, but this time on the daily chart, on a key point. The price level around 59-60 thousand usd were bitcoin failed to exceed between March 18 and 20 is this new key point and a failure to go above it would probably lead to higher risk to see this thing going below my weekly average.
Let’s be clear, we need to start seeing on the daily chart a sequence of rising highs and lows otherwise there is always an increasing risk that the bearish scenario hypothesized in the previous update comes true.
About this weekly average I note that since this strong trend started bitcoin has never spent too much time below it as you can see in the below chart.

BTCUSD Weekly Chart – Kama Average and Price Bands

What will happen? Bitcoin is probably going to continue to go up at a lower rate because as I’ve said many times since January the weekly kama efficiency ratio has to go down and it’s going down. Today we are at 0.70 from a high of 0.85 that bitcoin reached on the first Top of January and on the second one of February, I remind everyone that this value represents the ratio between volatility and directionality and varies from zero to one. You can see by yourself that after February we are going up with less intensity.

The strategy about my ongoing long term trade does not change, I continue to leave the trailing profit at $29,000.
It will be interesting for me to see if in the next few days bitcoin can make a new high above $60k.

Take care and see you at the next update.

Why this Drop?

I was saying in the last update that a bottom on the Kama average (daily chart) is a high and strong bottom, which suggests new highs coming.
This is not happened and usually, I emphasize usually, if after a relatively high bottom we do not have a new top what happens is that it may develop a sustained decline and is exactly what has happened in recent days.

This behaviour in my opinion can be explained by the situation on the weekly chart that i already pointed out in the long term update of last January 19, 2021.

In the chart below you can see that once arrived around 0.85 the kama efficiency ratio has begun to decline slightly, the consequence on the graph is a slowdown of the weekly trend in progress.
I do not think that the consolidation phase of the Kama ER (eff.ratio) is over, therefore the risk is that the lower part of the bullish channel might be tested, with the first support at 37 thousand dollars and the next at around 29 thousand dollars.
This risk of a drop exists and could materialize in the coming weeks, therefore the operating strategy requires a change, the stop loss that I once suggested at $35,000 could be too close and should be moved below $29,000 to remain protected from the volatility of this market. You don’t want to get caught by the market at the bottom and then see the train leave without you on board:)
Stay alert and lucid because a good buying opportunity could be coming, between $29K and $37K. It’s crucial to see if these days BTCUSD will stay or not above weekly kama at 51,000$

BTCUSD Weekly Chart