BTC: Shorter-Term Price Direction Keeps us Guessing

Dear Readers,

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I thought what I’d do with this fortnight’s article, given that the market seems in a more subdued mood on further BTC consolidation, is to look at the technical trends on various time-frames, and to see if such a mood is warranted, while also touching on the psychology of this mood. Of course, moods are invariably tied to shorter-term price developments, but I’ll also look to review the the way in which a more subdued price development is actually predicted, on the longer-term, along the lines of the LGC and a maturing market.

1] The Shorter-Term Trend

Technically, this is a good chart with a solid trend put in place, and the making of both higher local highs and higher lows. The technical lines of most significance here are the ones in bold that portray both horizontal and diagonal levels of support. With price currently just below 28K, a further correction to 25K, should that occur, would in no way be alarming. That kind of move would, on a technical basis, set up nicely for another move higher. Keep in mind that price was in the 15K range only six months ago.

2] The Mood of Conglomerate Man

After a solid move up, within the not-too-distant past, we now find price stuck in a range for the past month and a half. Technically, it looks fine… and yet psychologically we feel like the market is in the doldrums. This is because on the run-up we become more exuberant, and then start to sketch even greater moves - which are always a possibility and so to be considered. When instead price consolidates in a more mundane manner, a kind of disappointment kicks in… where the previous exuberance and expectation was not met.

Along with price, our bullish expectations have been ‘front-run’… as in too great an expectation, and so subsequently a reaction sets in and we start to find ouselves feeling a little anxious and bearish. Our own psychology swings back and forth along with the shorter-term price action, or lack thereof. In this picture, what the technicals provide is some equanimity in a now volatile, now not so volatile market.

And so coming back again to the chart, and a reading of the trend on longer-term time-frames, your bread and butter so to speak, before continuing to speculate on spicier shorter-term trades in the interim, ones that engage with a higher level of risk.

As seen in the chart, though naturally the current set-up is comparable to 2019, with that kind of explosive move always a possibility, the dynamic of the current situation, and as focusing primarily on the weekly MACD, a momentum indicator, looks quite different. As opposed to another parabolic run, which 2019 essentially was, even in only a mini parabola, price action here looks more conventional - corrections following on from solid moves up… a series of higher lows and higher highs.

2] A Macro Shift on the Longer-term Time-Frame?

It’s worth noticing in this chart that volatility, in the cyclical sense, has reduced when comparing this wider correction to the previous one. The angles drawn are a mean of price, where the angle of the rebound is commensurate with the angle of the correction. On viewing the chart, we can see that price development here has been more prolonged and subdued. And this is not suprising, and indeed something to be expected on the basis of the LGC model and a maturing market on its path toward eventual price stabilization - discovery. Of course, the BTC market is far from having yet discovered its price, and so price will continue to be volatile. As usual, this is a question of degree, where everything is relative.

Conceivably, price may just continue to plod along this line in a none-too-spectacular fashion. And yet we also know how spectacular price movements can be when we least expect them. The point here is to be aware of the various possibilities as opposed to some clairvoyant prediction. And it is a point directed more to investors in Bitcoin that are focused on the longer-term trend so as not to be overly surprised be shorter-term moves…. or lack of them.

To say more on the nature of these V angles as illustrated on the chart, they represent the respective rates of appreciation and depreciation of the corrections and subsequent recoveries. In comparing those angles, and as is made more clear on the following chart where they are aggregated, you can say that cyclical volatility is reducing as price discovery, along the lines of the LGC, is increasingly achieved. Or, to put it in other words, cyclical volatility is inversely correlated to price discovery, i.e.; the further price is discovered, the less cyclical volatility will be.

Given the preceding macro principle, and to leave you with something of a thought experiment - IF price is to develop within the confines of an LGC channel, where price becomes increasingly stable in ROI terms [return on investment], then the cyclical peaks and troughs must by degrees, in some way, become more flat. The recent double-top has helped to confirm this view. Price would also increasingly break or oscillate around those lines as drawn as it progresses toward the more mature phase of the LGC, where the LGC channel increasingly plateaus and converges. Though this will all still add up no doubt to the perception of radical volatility, even at a later date, in real terms it would be the exact opposite - decreasing returns and increasing price stability.

As for halving, though the mechanics of halving may yet have some impact on this dynamic going forward, you’d have to think that the maturing of the market would go some way toward diminishing its effect until at some point it’s the scarcity of BTC in itself that will be the complete driver of market price as opposed to the mechanics of an increasingly scarce ‘supply’, or creation of Bitcoin units. It will then simply be the market that provides supply - to buyers - as motivated by higher prices.

To close, I thought I might respond to a possible objection. The reader may think all of this a little abstract and theoretical. And, in a sense, they would be right. The observations and predictions here are based on the LGC model, a theory with which I’ve been working with for a good few years now. But like any good theory, its strength lies in more than abstraction - it lies in performance. It has been severely tested over the years a good few times now, and each time has passed with flying colors as the arc of the LGC has held. While this in turn does not provide a cast-iron certainty for the future, it does contribute to further confirmation and corroboration of the model, where that macro model in turn continues to provide some sense of direction for price going forward.

And then a further more speculative question remains as to how it’s possible that the price trajectory of Bitcoin could trace an almost perfect logarithmic growth curve. An LGC is a phenomenon found in nature - how is this at all applicable to the unnatural market? And yet, when you consider the market a species of Conglomerate Man then it makes perfect sense - here you have a mass of individuals behaving a certain way to capitalize something, from nothing, over a relatively short period of time, where explosive gains are followed on by an eventual plateauing of price as perceived on the logarithmic scale. A force of nature indeed.

Until next time,

Stay, relatively, safe out there,

Dave the Wave.