Here we are yet again, with BTC correcting, and sentiment nearing all time lows. If this was a novelty, we might have cause for concern, but it isn’t. We’ve seen it all before, where in the super speculative market of Bitcoin parabolas correct. Not to mention that this correction was predictable [and predicted]. The boy scout is always prepared, hence no need to panic even though the going may get tough. Time to bunker down, weather the storm, and keep confidence in the longer-term goals of BTC investment.
Of course, one’s entry levels into this market have been crucial. Since 2018, I’ve been advocating the LGC model [logarithmic growth curve] as a guide to buying, and more specifically the ‘buy zone’ that consists of the bottom band of the LGC. This article will first review the performance of the LGC model, and in turn look at that model as support of price going forward. Though there are no certainties in the world of speculation, it will by my intention to illustrate the way in which BTC investors may continue to have confidence going forward.
First of, the LGC zoomed out in order to show its logic - a channel incorporating, as much as possible, previous price points; an eventual plateauing of price representing eventual price discovery [and an LGC]; and convergence of that channel representing both price discovery and reducing macro volatility. The curves, which are custom drawn, have remained the same since 2018 - those curves are remarkably constrained to a particular range given the concepts just listed. The principles of this LGC model were further expanded on here and as a rationale for the pragmatic investor.
Looking at subsequent price action to 2018, the curves could hardly have been better drawn given that price has traversed right through this range - meeting support in 2019 again, meeting resistance twice at the top, and now, once again in my opinion, about to meet support at the lower curve/ buy zone. So far this model, that involves a restricted enough range to be tested, has been thoroughly tested indeed. And this is the strength of a model - make a prediction, and see if it is confirmed or invalidated. And so to a chart that zooms in a little closer, and that also includes the ‘buy zone’ predicted to be supportive of price.
What must strike the observer on first viewing this chart is:
1] Price currently in the buy zone
2] The fib retracement levels [measuring real values] that are relatively commensurate.
1] Price Currently in the ‘Buy Zone’.
They say that past performance is no guarantee of future results. Of course, this is a ‘category error’. We are not dealing with timeless certainties here, the kind that belongs to math, geometry and logic, but with predictions about the future that remain at best obscure and probabilistic. This is just to say that prediction is not clairvoyance. That said, not all predictions are created equal. The point of a model is to test a prediction, and if it passes a few crucial tests, then it has a better basis for believability, or rather confidence.
Here you have a model identifying a buy zone. If this buy zone had been followed in the past, the investor would have been lucratively rewarded. Past performance here gives a basis for confidence for future performance… within normal risk management parameters of course.
For the investor choosing to buy on the basis of the buy zone, perhaps a policy of reasonably layering in over a reasonable period of time here would be in order. As shortest-term volatility is the most difficult to predict, buying a few tranches strategically over a few months, within reason while price is in the buy zone, may be the best way to cover risk [to both sides].
2] Fib Retracement Levels [Measuring Real Values] are Relatively Commensurate
I find a comparison of the fib level retracements of interest, and, most specifically, of something that works in well with the theory.The actual development of price corresponds to the theory of the LGC model, where diminishing returns are predicted to lead to diminishing macro volatility…. and as measured in real values.
Notice that the sequence of the fib retracements shows an increase: first between 0.23 and 0.38; the second 0.38; the third between 0.38 and 0.50. Though in cyclical terms this gives an incremental increase in each retracement, in aggregate terms this gives you a diminishing volatility in the over-all macro. And this is as you’d expect if price is to become increasingly stable and less volatile as BTC is increasingly capitalized [see first zoomed out chart]. Where before a purely technical analysis may have looked for strictly similar retracements between the ‘cycles, now a technical analysis combined with the macro model sees these retracements slightly increasing… and in keeping with the LGC channel.
And so a prediction could be made about the next run up as per the following chart, that the next large move [a sketch/ possible scenario] to the top should see a real retracement to the 0.50 level.
Perhaps this idea of diminishing returns in the macro is more clearly seen in the sequence of ROI [return on investment] measurements seen when measured from bottom to bottom… as opposed to the usual comparisons of bottoms to tops. Increasingly, what you see here, is a case that would emphasize Bitcoin better as a longer-term investment in contrast to a shorter-term speculation. Though those possible corrected gains on the next cycle may seem small, they should further accumulate into much bigger numbers over the coming years.
Of course, if this kind of volatility is going to remain with Bitcoin over the coming years, there is also a good argument here of complementing one’s longer-term investment in BTC with a trading of continued volatility [perhaps in other coins] in the shorter-term… and as a hedge.
It’s been my intention in this article to outline the way in which Bitcoin’s continued volatility has come as no surprise, how a model that has performed in the recent past can continue doing so in the near future, and how that continued volatility [speculation] in price may just be in turn the means by which Bitcoin realizes price discovery [or capitalization].
On the basis of the LGC model, and though there is never a certainty, why wouldn’t the rational and pragmatic investor put some money to work here, and, for that matter, why wouldn’t the long-term investor/ hodler remain confident in their investment?