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).
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!
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.
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 $64,000. Thus, as i wrote in this post title, we are at a critical point in time to understand what scenario bitcoin will go into.
The Big Picture
Here you can see what I said before, the Top of a halving cycle is always lower than the bottom of the next cycle, I interpret this as a strong bullish signal of the fundamental trend of bitcoin.
To conclude many of you are probably asking why the hell i sold below 29,000$ 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.
The Efficiency Ratio (from now on ER) was presented by Perry Kaufman in his 1995 book “Smarter Trading” and it is calculated by dividing the price change over a fixed number of bars by the sum of the price movements that occurred to achieve that change. The resulting ratio ranges between 0 and 1 with higher values representing a more trending market. The idea here is to measure the value of the ER during an important Bitcoin Top to see if there is a strong coherence between different timeframes.
Date
Daily ER
Weekly ER
Monthly ER
Average of 3
November 30, 2013
0.70
0.79
0.64
0.71
December 18, 2017
0.66
0.74
0.88
0.76
January 8 , 2021
0.62
0.77
0.44
0.61
Multi TimeFrame Kama Efficiency Ratio at Bitcoin Historical Tops
The high of last January 8 does not seem to have a situation on the various timeframes similar to that one of two important Bitcoin top (2013 and 2017), in particular the situation on the monthly timeframe is inconsistent. On the weekly timeframe instead ER is quite high but I think that in the end the monthly timeframe will prevail. It is always difficult to understand which timeframe dominates over the others but personally I prefer to give precedence to the highest timeframe, in this case the monthly where there is room to rise. I attach below the weekly chart so you can better visualize the ER situation
And here the monthly chart where you can clearly see there is room for a prolonged trend.
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 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!
For those who follow me on twitter know that my bitcoin price model v1.1 that I presented on this blog last September 2019 has been invalidated by the recent low of March 13 at $3850. I use 95% confidence level bands around my model forecast and that day the lower confidence level has been violated thus invalidating my model.
Since that day I have at various times pondered how to improve my old model and I recycled an idea that came to my mind last year when I presented the first model.
This idea is not to use the time factor to calculate the price of bitcoin but instead use the number of existing bitcoins that as you know grows over time and halves about every 4 years (until now it happened in 2012,2016 and 2020).
In doing so I discovered that there is a fairly strong linear relationship between the logarithm of the bitcoin price and the number of existing bitcoins at that particular moment.
With the software i use isn’t complicated to find a formula that approximate all the selected bitcoin bottoms.
This is the dataset used to compute the model:
Date
Low
Bitcoin Supply
2010/07/17
$0.05
3436900
2010/10/08
$0.06
4205200
2010/12/07
$0.17
4812650
2011/04/04
$0.56
5835300
2011/11/23
$1.99
7686200
2012/06/02
$5.21
9135150
2013/01/08
$13.20
10643750
2015/08/26
$198.19
14536950
2015/09/22
$224.08
14637300
2016/04/17
$414.61
15439525
2016/05/25
$444.63
15582350
2016/10/23
$650.32
15943563
2017/03/25
$889.08
16235100
2019/02/08
$3,350.49
17525700
2018/12/15
$3,124.00
17423175
2019/03/25
$3,855.21
17608213
2020/03/13
$3,850.00
18270000
The Formula is a very simple one, a first order price regression between log(Low) and Bitcoin supply:
Where:
FPL = expected line where bitcoin is fairly priced
intercept = a costant
c1 = another coefficient that defines the slope of the Bitcoin supply input.
Here’s the resulting model after computing the parameters of the above formula.
This is the new bitcoin price model “FPL Line” v1.3 applied to a monthly bitcoin/usd chart:
Next Step: Computing the formula for the TopLine
The formula for computing the Top is:
Where:
TopLine= is the forecasted price where the next long term top might be.
intercept = a costant
c1 = another coefficient that defines at which pow the bitcoin supply is elevated
This formula is different from the one used to compute the FPL or bottom line. I’ve seen that there is not a strong linear relationship betweel the logarithm of important Bitcoin Tops and the Bitcoin supply, so i decided to switch to the formula used for the old model and it works better.
This is the dataset used to compute the model:
Date
Price
Bitcoin Supply
2010/07/17
$ 0.05
3436900
2011/06/08
$ 31.91
6471200
2013/11/30
$ 1,163.00
12058375
2013/12/04
$ 1,153.27
12076500
2017/12/19
$ 19,245.59
16750613
Here’s the resulting model after computing the parameters of the above formula.
This is the new bitcoin price model “Top Line” v1.3 applied to a monthly bitcoin/usd chart:
95% Confidence Error Bands
With the indicator that i give you for TradingView i included also the error bands.
This are the error bands for the TopLine:
And for the bottom line or FPL (FairPriceLine) It is quite obvious that with fewer points available the error bands for the TopLine are wider and less accurate compared to the FPL error bands where I have more points (17 instead of 5).
TradingView Indicator
I have also included an indicator for TradingView to give you the opportunity to experience the concepts and model illustrated in this update. You can also check the code and/or modify it as you like.
On April 10th, 2020 tradingview staff decided to censor my indicator and threatened to close my account, because of this i publish here the code so you can create your own indicator by yourself.
Remember to add a “TAB” key once before stock (line 10 and 13), in the process of copying and pasting data back and forth from tradingview the tab key is gone probably because there is not a tab code in HTML.
This is a forecast up to 2032 halving, price will saturate between 27,000$ and 130,000$ with a maximum possible peak at 450,000$ in case of a strong bubble.
Conclusions
This model is clearly experimental, we will see in the future how it will behave. It is probably questionable my choice to use the existing bitcoin supply instead of using time as a main input for the model, I’m curious to know your opinion about it. Thank you.
The trading platform used here is unchanged: Sierrachart 64 bit.
The big amount of tick data processed to compute this interesting volume oscillator wouldn’t be possible to do at TradingView or similar online platforms.
The “up/down Volume Ratio” oscillator is computed and smoothed using a 18 periods (18 months or 1 year and a half) linear regression moving average.
Volume made on an uptick is considered positive while if made on a downtick is negative, then the aforementioned oscillator is applied.
I added also in the chart the widely know ALMA moving average (9 periods, standard settings).
I added for comparison the same template applied to BTCUSD at Bitstamp exchange.
Very curious to see a perfectly balanced volume activity at Kraken exchange for 3 months in a row while at the Bitstamp the volume activity is unbalanced upwards.
As a positive note i can say that i don’t see any negative volume activity in either of the two exchanges considered. Said this my best guess is that the price retracement from about $13800 to $6400 was a normal correction of a bullish market and that the bear market ended on March ’19.
Every year i post an outlook using entropic methods explained in the technical section of this blog. Here you can find the 2015, 2016,20172018 and 2019, forecast update, where you can find more information about this approach.
Updated values for bitcoin (in brackets values of last year) using daily data since August 2010 (average data of 4 important exchanges when possible).
BTC/USD
Growth Factor G
1.00087 (1.00088)
Shannon Probability P
0.5219 (0.5222)
Root mean square RMS (see this as volatility)
0.056 (0.058 )
Bitcoin’s entropic values versus the Usd stayed stable during 2019 although volatility has fallen a bit like in 2018, the Growth Factor (G) decreased a bit to 1.00087% compounded daily or 137.7% yearly, close to the value of 1y ago. The optimal fraction of your total wealth to invest in bitcoin is unchanged to 4.4% (~0.522*2=1.044 – 1 = 0.044 or 4.4% roundable to 5%)
These values are still much better then conventional markets except the Shannon Probability that still match the US Stock Markets (around 0.522); it means that out of 100 days an asset goes up 52 days and down for 48 days, on average.
2020 Price forecast
Full Historical Volatility
Half Historical Volatility
Forecast using only G*
~9951$
~9951$
Upper bound adding volatility
~29380$
~17097$
Lower bound subtracting volatility
~3370$
~5790$
*9949 is obtained with 1st January as a starting price (around 7227$) times (1.00087^365)=~1.377 | 7227*1.377=~9951, just change 365 with the number of days you prefer for a different forecast.
What went wrong in 2019? Nothing:)
A year ago, I forecasted a maximum top of $16150 never reached during the year.
This market stayed above the 3000$ support forecasted 1 year ago but it didn’t go to the 1700$ support level using full historical volatility. On the other side it tried to reach the 16150$ resistance level with a top at 13880$ on June ’19.
During 2020 I recommend to buy inside the half volatility support area between 5790$ and 9950$ (target price using only the growth factor G)having already an open position from ~9000$ I will not buy more bitcoins during 2020.
Conclusions
For this year i think that there is a good probability to stay inside the 5790$-17100$ price zone with an equilibrium point at 9950$.
Like one year ago, i think that at the end of a strong buying climax period, if any, it will be wise to reduce your bitcoin investment if the price goes above 50k USD (price calculated using the equivalent of 1.5 times the historical volatility of bitcoin while the other 17k usd target is calculated using 0.5 times historical volatility)
For all of you that are probably asking why i haven’t mentioned my fresh new bitcoin price model in this update i answer saying that i prefer to don’t mix different approaches. Aniway actual value of the Bitcoin FairPriceLine is roughly 5800$ and it’ll be at 10600$ at the end of 2020, same support price area of my quantitative approach (5790$-9950$)
I’m at your disposal for any questions; see you at the next update and Happy New Year!
For those who follow me on Twitter already knows that I opened a long term position after many months out of the market, to support this decision today i like to share with you this analysis made on volumes thanks to the data of the Kraken exchange using the BTCUSD cross. With other exchanges the analysis is however interesting but less accurate, I got the best results with Kraken.
The analysis starts from an accurate measurement of volume activity using tick data, each trade is considered in the calculation to have a net result about the flow of volume.
For who follow me on this blog should know that the trading platform used here is Sierrachart 64 bit, the big amount of tick data processed to compute this interesting volume oscillator wouldn’t be possible to do at TradingView or similar online platforms.
The “up/down Volume Ratio” oscillator is computed and smoothed using a 18 periods linear regression moving average. I added also in the chart the widely know ALMA moving average (9 periods, standard settings).
I think i’ll probably use this template to help me to understand when the current uptrend will end and at the same time to maximize the trade exit efficiency of my current long term trade.
I conclude this short post spending two words about what i said in my previous blog update (Jan 2019). Well, this market broke the first resistance at 9k usd (it was a conservative target already met) and the next one is around 16k usd. At that time i wrote also that increasing the volatility factor from 1x to 1.5x the next important resistance is near 30k usd. I really think that if a big trend develops this year, it will probably end near this resistance level.
The current reason beyond this uptrend might be that the market is discounting the next year block halving that in the past always pushed the price very high; i’ve seen a model out there on the web forecasting bitcoin at 55k usd because of this incoming halving, basically an attempt to model bitcoin price starting from its scarcity.
Don’t forget to follow me at Twitter, it’s quicker to post update there for me.
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 and 2018 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
1.00088 (1.00280)
Shannon Probability P
0.5222 (0.5384)
Root mean square RMS (see this as volatility)
0.058 (0.059 )
Bitcoin’s entropic values versus the Usd deteriorated in 2018 although volatility has fallen a little bit, the Growth Factor (G) decreased down to 1.00088% compounded daily or 138% yearly down from 280% of 1y ago. Also the optimal fraction of your total wealth to invest in bitcoin dropped a bit in 2018 with a 4.4% instead of 7.7% of 1y ago (0.522*2=1.044 – 1 = 0.044 or 4.4% roundable to 5%)
Generally these values are still much better then conventional markets except the Shannon Probability that now 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.
2019 Price forecast
Full Historical Volatility
Half Historical Volatility
Forecast using only G*
~5269$
~5269$
Upper bound adding volatility
~16150$
~9230$
Lower bound subtracting volatility
~1720$
~3000$
*5269 is obtained with 1st January as a starting price (around 3820$) times (1.00088^365)=~1.37 | 3823*1.37=~5269, just change 365 with the number of days you prefer for a different forecast.
Using different approaches the support area for 2019 is around 1700$-3200$ while the resistance price area is above 9000$.
What went wrong in 2018?
A year ago, I forecasted a maximum top of $121000 never reached during the year. I halved the volatility factor (rms) to find a more realistic price level and i obtained 68000$, a value missed again by BTC/USD.
This market has been very weak all the year but the definitive sign of weakness has been the breaking of the support around six thousand dollars followed by an important minimum at about 3100$, a price level that I showed you a few months ago.
In that tweet i identified an additional support area from 2100$ to 3200$ that so far has not yet been visited.
If possible I recommend to buy inside this price area otherwise another trading opportunity will be to buy on strength when BTCUSD will break above the monthly 5 periods Kama average (i’ll tell you when with a tweet), this average is now around 5000$ but next month will probably drop to 4800$ .
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 2019 a good probability to stay inside the 1700$-16000$ 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 30k USD (price calculated using the equivalent of 1.5 times the historical volatility of bitcoin while the initial 16k usd target is calculated using the historical volatility)
I’m at your disposal for any questions; see you at the next update and Happy New Year!
After several months since the last update there are no particular news, at the time I wrote that “…..My opinion is that the bitcoin will continue to remain for most of the year within the levels calculated with the KAMA (yellow) and therefore remains a good opportunity to buy the price area from 4000 to 5500 dollars…..” and my opinion has not changed since then.
I have read everywhere that the descending triangle pattern will soon tell where bitcoin will go, whether to break upwards or downwards. I can’t say which way the price will take but usually when too many investors/traders expect one thing the market has the habit of doing the exact opposite.
The bitcoin usd cross might test the 4k level for a short period of time followed by a strong upmove; a last shakeout move tends to shake out the weak hands before the next big move, many investors will be very scared in seeing the bitcoin go down to 4k usd, I do not and possibly I could decide to buy again in that price range (4000$-5200$).
To conclude it’s very important to see if the level of 5200$ will be tested and broken before year’s end, if so an interesting buying opportunity might arise. If not, then another buying opportunity might be to enter the market if bitcoin moves above the Kama monthly average now at 8650$.
Every beginning of a new year i post an outlook using entropic methods explained in the technical section of this blog. Here you can find the 2015, 2016 and 2017 forecast update, where you can find more information about this approach.
Updated values for bitcoin (in brackets values of last year) using daily data since August 2010 (average of 4 exchanges when possible).
BTC/USD
Growth Factor G
1.0028 (1.0007)
Shannon Probability P
0.5384 (0.519)
Root mean square RMS (see this as volatility)
0.059 (0.045 )
Bitcoin’s entropic values versus the Usd strongly improved in 2017 but volatility increased a bit, despite this the Growth Factor (G) increased up to 1.0028% (remember that volatility is detrimental to the Growth Factor) compounded daily or 280% yearly up from 30% of 1y ago. Also the optimal fraction of your capital to invest in bitcoin improved in 2017 with a 7.7% instead of 6.4% of 1y ago.
2018 Price forecast
Full volatility
Half volatility
Forecast using only G*
~38700$
~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!
This is the last version of my KAMA indicator (public at tradingview) with default settings tuned for BTCUSD weekly chart.
In the previous two occasions the first deviation line held well the drop, notice how in the recent November bottom the price was at an intermediate level between the Kama and the first negative line, an high bottom interpretable as a strong signal followed by a strong top (~19600$)
At the moment the bottom is around 11k usd, done again at an intermediate level while the 7500$-9000$ support area is defined by the 1st and 2nd deviation line.
This support area should work especially if the market goes sideways, it could be a nice zone where to buy with reduced risk of high initial drawdown.
There are no guarantees that the market will stay sideways enough to test that support area but strategically isn’t a bad move to buy inside it with a stoploss below 7000$.