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: 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

Long Term Update: 2020 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 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!

Long Term Update: 2019 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 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!

Long Term Update: Bottom Done Yes or No?

On 18 January 2018, I wrote that the bottom was probably done but I hinted that at the break of the same I would have closed my long term position, unfortunately there was a subsequent very strong selling activity after a weak reaction from the support of the weekly chart (at about 9500$). In these cases it is useful to scale the time frame to the next one (from weekly to monthly), so i applied the KAMA average and its deviation lines to the monthly graph instead of applying them to the weekly graph.
The resulting graph is this at the moment and the market has reacted strongly from this support area.

monthly chart btcusd
BTCUSD Monthly Chart – Kama and deviation lines

You can see that the first deviation  line has hold the price from further lows at the end of the 2014-2015 bearish market, the same negative deviation line reported to date is at about $ 5300 and the market, for now, has done a bottom at $ 5900. I’ts difficult for me to say if the bearish market started in December 2017 is over, I remain convinced that we will hardly see stable prices under $3900 and that the support area from $3900 to $5300 will be very strong for this year.

If during ther year the trend of the Kama average becomes bearish from flat we will have a confirmation that a down trend, even on the monthly chart, has been established and this would undermine a little the validity of the support area indicated in the chart.
For now I think that the market is still stronger than the 2014-2015 period and that any medium-term correction should be above the indicated support area.

Italian version here.

 

Weekly Range Update: at resistance

eng
XBTUSD Daily Chart – VWAP and dev. levels

XBT/USD weekly price range 7600$-10700$ | The 2-month VWAP is now at 6600$, the resistance zone ranges from 9600$ to 10700$ and is defined by the 3rd and 4th price deviation line.
XBTUSD begins the week at a resistance level, however this pair has proven that it is not impossible to reach the fourth positive deviation line above VWAP, it has already happened on November 8th.

The support area ranges from 6600$ to 7600$ and is defined by VWAP and the 1st deviation line.

In the event of a strong profit taking, I think it is very difficult to see a test down to the VWAP at 6600$, given the enormous strength of this market is much more likely that the support level at 7600$ will hold.

The RSI oscillator is clearly overbought with its average just above the threshold level of 70; these two conditions do not preclude a further boost of the market up to 10700$.

In the event of an unexpected catastrophic news, the support area on the weekly chart is updated to 3700-4400 USD.

ITA version here.

Offtopic: Quantitative Analysis of Altcoins, part I

In this update we will compare major altcoins towards bitcoin with the quantitative systems I use in the annual forecast that I publish in the first post of each year. Concisely we will list the volatility and gain values of these alternative assets to bitcoin. I would remind you that it is always preferable to invest in assets with low volatility and consequently high returns, volatility always deteriorates the gain of an asset.
I used weekly data, the last 52 weeks where possible. Only Bitcoin Gold hasn’t enough data for a proper computation of its quantitative values.

ALTCOIN Gain (G) Volatility (RMS)
Ethereum 0.9865 0.176
Dash 0.9862 0.188
Monero 0.979 0.1509
Litecoin 0.977 0.1511
Ethereum Classic 0.9765 0.169
Next 0.961 0.182
Ripple 0.96 0.236
Zetacash 0.951 0.1631
Stellar Lumens 0.9313 0.29
Bitcoin Cash 0.93 0.207
Qtum 0.909 0.206
Iota 0.88 0.179
Eos 0.8421 0.322
Bitcoin Gold n/a n/a

This table explains why every time you ask me an advice about altcoins, I tell you that it is better to ignore them because NO ALTCOIN shows positive gains above the unit due to the fact that they are dominated by volatility that highly reduce the final gain of the asset.
Said this, the less bad altcoins are Dash and Ethereum followed by Monero and Litecoin with a preference to these last two because of lower volatility compared to Ethereum and Dash.

A special mention to Bitcoin Cash that, considering its high market cap, both Gain and Volatility are bad.

To conclude, the big mistake is to compare altcoins to USD, in my opinion it’s wise to compare them against Bitcoin; against fiat currencies is easy to perform well.

Technical Appendix

The procedure to compute volatility and gain is always the same explained in the past:

  1. Compute log of Today bar divided by yesterday bar
  2. Average values (avg) of last 52 periods (n) (1 year using weekly data)
  3. Compute Volatility (rms)
  4. Compute price momentum probability with the formula P = (((avg / rms) – (1 / sqrt (n))) + 1) / 2
  5. Compute Gain using the formula G = ((1+rms)^P*((1-rms)^(1-P))

ITA Version here

Weekly Range Update

bitstampUSD 1 Day #1 2017-09-18 09_48_01.095
XBTUSD Daily Chart – VWAP Levels

XBT/USD weekly price range at 3650$-4300$ | As I wrote on twitter the market found support within the support area of my previous update that had a lower limit of $2800. I would like to point out that I will not increase my long-term position opened between 2014 and 2015, but I will tell you when there will be a buying opportunity.

Today’s reaction is positive and I believe that in 1-2 days the ALMA moving average will turn upwards together with the average of the RSI oscillator.

The RSI has already given a purchase signal, but it is better to confirm it when its average slope will also turn positive.
When these conditions are met we will have a buying opportunity.

In the event of a catastrophic news, the support area on the weekly chart remains unchanged at 2000-2500 US Dollars.

ITA version here.

Technical Update: KAMA, an underrated indicator

Kama moving average is a very interesting filtering technique developed by P.Kaufman.
This moving average has been designed to account for market noise or volatility, KAMA will closely follow prices when swings are small and the noise is low, instead when the price swings widen KAMA will adjust trying to follow prices from a greater distance. This trend-following indicator can be used to identify the overall trend, time turning points and filter price movements when the market is flat avoiding annoying whipsaw false signals trades.

At the moment i’m working on a modified version of this indicator with the help of the tradingview online platform, i added deviation lines from the KAMA average and settings have been optimized to better track XBTUSD price movements on daily and weekly chart.

Here’s an example of this indicator applied to a weekly chart of XBTUSD with some comments.
xbtusd_w

It’s evident that when the market is flat the KAMA average is relatively stable without giving false signals, when this happens you can try to trade deviation lines to catch bottoms or tops.

About this week the secondary positive deviation line is around 3200$, should you go short at that level? Well is at your own risk to trade against the main tendency that now is bullish, instead you might follow the trend buying at the midline or below it, i’m enough sure that today sell-off is healthy and the price was just moving back to the midline point (KAMA average) from the first positive deviation line.

Beware that because of very large price variation during the same bar the KAMA and its deviation lines can change a bit. The indicator is available for free at tradingview.com, just look for “KAMA – Enky v1.0”.

Your feedback is highly appreciated and will help me improving this trading tool.